Changing buying habits and the influx of nontraditional insurance and reinsurance capacity are among the challenges facing the London insurance market, according to a report published Monday by A.M. Best Co. Inc.

There is intense downward pressure on rates in the property catastrophe reinsurance market, the Oldwick, New Jersey-based rating agency noted, with double-digit rate decreases and widening terms and conditions seen at the Jan. 1 renewals.

“As companies seek to deploy capital elsewhere, rate reductions have spread to most other lines of business, with large property and energy risks subject to the greatest declines,” according to the report, “London Market Insurers Enjoy Strong Balance Sheets but Changing Dynamics Challenge Sector.”

Best said the availability of alternative capital continues to grow and increasingly is supplied by long-term investors. In response, many traditional London market insurers have begun offering terms and conditions that are difficult for alternative capital to replicate, such as multiyear deals and reinstatements, Best said.

Underwriter relationships with brokerages have also been under pressure because of a trend by brokers to reduce the number of insurers on panels, Best said, and this is having a marked effect on the London market.

“Following markets that have little to contribute beyond a small amount of capacity are falling off the bottom of underwriting slips,” according to the report. “In contrast, those companies that have the ability to offer significant line sizes and have the expertise to provide tailored solutions are at a competitive advantage.”

The use of broker-underwriter facilities continues to grow, the report noted.

“In A.M. Best's view, underwriters should exercise caution when participating in pre-brokered facilities, mindful of the diminished ability to influence risk selection and pricing, as well as the associated costs,” it said.

The London insurance market also is facing pressure from the growth of competing local and regional hubs, the report said.

Lloyd's of London and other market players have responded to this trend by increasing their own international reach and setting up regional offices, Best said.