BADEN-BADEN, Germany-Reinsurers paint a fairly bleak picture for an industry that is rolling in money.

Despite making substantial profits for the past several years, many reinsurers meeting in Baden-Baden, Germany last month say rating levels do not adequately reflect the risks they are accepting from ceding insurers.

The high property reinsurance rates of the early 1990s have dwindled and casualty rates have continued to fall year after year, reinsurance executives say.

An unusually low number of catastrophes and other lower level losses-combined with unusually high investment returns-account for the current prosperity of reinsurers.

However, when losses return to more normal levels and investment income decreases, reinsurers will find that the fundamental price of their products is inadequate, executives say.

The outlook for any improvement in rates through year-end renewals and beyond is gloomy for reinsurers, they say.

Increased competition from investment banks and the general prosperity of most reinsurers makes any change in the market unlikely.

Reinsurers have made a lot of money over the past four years, but that has largely been due to luck rather than good underwriting practices, said Leif Corinth-Hansen, chief executive officer of Copenhagen Reinsurance Co. in Lyngby, Denmark.

"There have not been any big catastrophes in that time but maybe next year there will be a catastrophe and we'll lose 10 years' worth of profits," he said.

Reinsurers need to make consistent profits over a sustained period to provide security for cedents, Mr. Corinth-Hansen said.

"We try to tell clients, in good times and bad times, why we think pricing should be what we are advocating," he said.

Currently, many rates and commission levels do not nearly reflect the underlying risks, Mr. Corinth-Hansen said.

Investment gains have been the main factor behind reinsurer profits over the past several years, said Martin Oesterreicher, head of marketing for Central and Eastern Europe at Swiss Reinsurance Co. in Zurich.

"It is not our (underwriting) results that have produced the strong profits; it is our investments and the good stock market that has been the main source of our income," he said.

Reinsurers are likely to find it increasingly difficult to make underwriting profits as more competition comes into the market, Mr. Oesterreicher said.

The overflow of Bermudian capital into Lloyd's of London is creating more competition in the conventional market, he said. In addition, the growth of capital markets-based insurance and reinsurance products is leading to an even more competitive market, he added.

"We would expect to see some more competition as quite a number of financial institutions are moving into insurance and reinsurance. But Swiss Re is a major player in this field, too, so if this market expands we should have a large part of it," Mr. Oesterreicher said.

Reinsurers should treat the current soft market conditions as normal if they want to remain profitable, said Wilhelm Zeller, chairman of the executive board of Hannover Reinsurance A.G. in Hannover, Germany.

"What I did not expect to hear about here was that people were surprised about what was going on in the market and they think that it can't continue," he said.

Reinsurers have to be able to prosper during the soft market if they are to remain viable in the long term, Mr. Zeller said.

"The soft market is normality and the hard market is the exception to the rule," he said.

Reinsurers will likely place an increased emphasis on add-on services as they try to compete in the market, said Raymond B. Blake, vp-reinsurance at Nationwide Insurance Co. in Columbus, Ohio.

For example, Nationwide offers services such as third-party administration and structured settlements expertise, he said.

"Those are all supplied by our parent company so we can offer them to non-competing companies in the United States," Mr. Blake said.