MONTE CARLO, Monaco -- Reinsurance rates still have not hit rock-bottom, but they might at this year-end renewal season, reinsurance executives hope.

While few reinsurers expect property and casualty reinsurance rates to do anything but fall, many say a combination of factors could halt the decline after Jan. 1, 1999, renewals are sealed.

The current depressed level of reinsurance rates; the recent declines in worldwide stock prices; an increase in the frequency of catastrophe losses in 1998; and potential Year 2000 losses all could combine to stop the declines in reinsurance price declines.

But stacked against those mitigating factors are some strong reasons for low reinsurance prices: another year of strong profits for reinsurers; the continued absence of large catastrophe losses for reinsurers; more efficient methods of securitizing risks; the clout of the megabrokers; and the continued quest for market share from established and new reinsurers.

Which set of forces will prevail will not be known for several months, but the relative strength of each factor on the market was one of the talking points at the 42nd annual Rendez-Vous de Septembre, held Sept. 7-11 in Monte Carlo, Monaco.

The Rendez-Vous is the traditional beginning of year-end reinsurance renewal negotiations. Every year in the first full week of September the tiny principality on the Mediterranean is brim full of reinsurers, cedents, brokers and consultants each gauging relative negotiation stances to be taken in the upcoming renewals.

Few deals are completed during the meeting, but most participants agree that the meeting serves a useful function as a forum for general discussions.

This year, more than in previous years, the talk centered less on renewal rates and more on wider industry issues, such as consolidation (see story, page 45).

Indeed, more than a few participants this year were working for different companies from those they represented last year, either because of a change of ownership in their companies or switching employers.

But regardless of the changes in the makeup of the reinsurance industry, most participants at the Rendez-Vous agreed there would be little change in the downward direction of reinsurance rates this year.

Cedents will be pushing for further decreases as they continue to absorb losses within their retentions that are not large enough to penetrate their reinsurance coverage, said Ron A. Iles, London-based chairman of Chicago-based Aon Re Worldwide, a unit of Chicago-based Aon Corp.

"A lot of buyers feel that reinsurers are not sharing the pain. They are not doing anything like as well on their net accounts as reinsurers are doing on their accounts," he said.

The lack of losses for reinsurers so far in 1998 will likely lead to reductions, agreed Jacques Blondeau, chairman and chief executive officer of SCOR S.A. in Paris.

Although the ice storm in Canada and windstorms in the United States this year have affected primary insurers, they have not resulted in large losses for reinsurers, he said.

Reinsurance rates for commercial lines could deteriorate another 10% to 15% at year-end, Mr. Blondeau said.

Catastrophe reinsurance rates will likely not fall as much, as they are already at very low levels, he said.

"There is a tremendous amount of competition," Mr. Blondeau said.

Only life, personal lines, and credit and surety reinsurance rates remain relatively attractive for reinsurers, he said.

The reinsurance industry's fundamentals are the worst they've ever been, said Steven J. Bensinger, president of Chartwell Re Corp. of Stamford, Conn. One problem, he said, is that "people are saying, 'What's it going to take to change it?' rather than saying, 'Here's what we're going to do to change it.' "

The fan who gave St. Louis Cardinal Mark McGwire back the ball he hit for his 61st home run "must have been a reinsurance underwriter -- giving something back for nothing," quipped Mr. Bensinger.

Catastrophe rates still could fall further, according to John Berger, president and CEO of Chubb Re Inc., the newly formed reinsurance subsidiary of Chubb Corp. in Warren, N.J.

As long as there is an absence of catastrophes, many reinsurers seem to think rating levels are not much of an issue, he said.

"But, of course, we don't know how long that will go on," Mr. Berger said.

Even if the pattern of low catastrophe losses that many reinsurers have benefited from since 1992 were to come to an end, catastrophe rates still might be largely unaffected, said Herve Cachin, chairman and general manager of Societe Anonyme Francaise de Reassurances, a Paris-based unit of Partner Re Ltd.

European reinsurers, in particular, will be well-placed to absorb another catastrophe as they have established large catastrophe reserves, he said.

However, as catastrophe rates already have declined to such low levels, declines at year-end for this line may be limited to 5% to 10%, Mr. Cachin said.

"Prices have dropped so much more outside of the United States, and today rates in Europe and Japan are lower than they were in 1992," he said.

But reinsurers still have made a lot of money over the past two years, and they are all unwilling to give up any of their market share, Mr. Cachin said.

"Even the largest reinsurers are prepared to write business at inadequate prices," he said.

"We have surplus capital, and greed is still prevalent, so we have very little to fear," observed Michael A. Butt, a director of X.L. Mid Ocean Reinsurance Co. Ltd. of Hamilton, Bermuda, during a presentation at the Rendez-Vous. "Fear has to come back for the excess surplus to be eroded," he said.

Any change in the market is likely still some way off, said James F. Dowd, chairman and CEO of Odyssey Reinsurance Corp. in New York.

"I don't see any dramatic changes or anything on the horizon that will change things in the next 18 to 24 months," he said.

The only event that could change that view would be further sharp deteriorations in financial markets, Mr. Dowd said.

"But I'm optimistic enough to think that won't happen. We seem to be in a recovery period," he said.

"The market is very soft, but it's been that way now for a long time," said Dirk Lohmann, chief executive officer of Zurich Insurance Co.'s reinsurance operations. "I'm used to it and can thrive in it; you have to work harder," he said.

"Reinsurers are fighting to not have to make as many rate reductions. But the capacity is there and competitition is huge, so there will be more reductions in rates -- even though loss frequencies may be increasing," said Vincent Redier, chairman of Aon Holdings France and formerly head of Group Le Blanc de Nicolay, which Aon acquired in April.

The pressure to further reduce rates remains, agreed James P. Bryce, senior vp at International Property Catastrophe Reinsurance Ltd. in Bermuda.

"Last year we were swimming upstream and this year we are still swimming upstream, but the current may be getting a little stronger," he said.

Again, the lack of catastrophe losses will bring more pressure on reinsurers to reduce rates further, he said.

However, other factors affecting reinsurers may mitigate that pressure, Mr. Bryce said.

"The question of rates has not really come up as often this year. There's a feeling that maybe enough is enough," he said.

And although there has not been any large insured catastrophe, there has been an upturn in smaller weather-related losses that may have affected some reinsurers, Mr. Bryce said.

"There has been a high frequency of losses, and anyone that is writing aggregate covers will almost certainly feel it," he said.

Canadian cedents are likely to face higher property catastrophe rates, because cat models never contemplated the risk of the severe ice storm that hit parts of Canada and the northeastern United States in January, said Hans D. Rohlf, managing director and chief underwriting officer-North America for Hannover Reinsurance A.G. of Hannover, Germany. The failure to consider that risk was a mistake, and pricing needs to reflect that exposure, he said.

Rates will likely drop, but maybe not as much as at year-end renewals in the past few years, said Norbert Strohschen, chairman of Gerling-Konzern Globale Reinsurance Co. in Cologne, Germany.

Shareholders of reinsurers will be piling more pressure on reinsurers to generate profits as they see their capital gains from other investments subside due to the downturn in financial markets, he said.

"A lot of people are seeing their capital gains melting away and interest rates are low, so there will be pressure from shareholders," Mr. Strohschen said.

And the financial crises in developing markets, such as the Far East and Russia, will limit the ability of reinsurers to develop new business to generate profits, he said.

"If the idea is to produce profits for shareholders, we have to do something about it, so this year there maybe further slight reductions, but it could come to an end," Mr. Strohschen said.

Executives of Paris-based SOREMA S.A. emphasized the importance in the current reinsurance climate of having the financial support of a strong parent company with a long-term view. SOREMA is a subsidiary of French mutual insurer GROUPAMA S.A.

"We are confident we are here to stay," said Alexis Ruset, chairman and chief executive officer of SOREMA. With GROUPAMA's backing, the reinsurer is able to focus on long-term growth rather than short-term gains, he said. "We can't change overnight; it's a long-term strategy," he added.

SOREMA also benefits in that its parent is not demanding the same sort of returns on equity that some other reinsurers are struggling with, Mr. Ruset said.

Although many competitors are trying to attain a 15% return on equity, "we want a 10% return on equity," said Mr. Ruset, who added that "15% can be tragic for many companies, because it is a directive from shareholders that can't be met responsibly."

"The market is as bad as I've seen it. Maybe time erodes memory, but it seems as bad as ever," said Brian Duperreault, chairman, president and CEO of ACE Ltd. in Bermuda.

"There aren't many areas that are bright spots, or that we see as resurgent," he said.

But with recent declines in world stock markets, it is unlikely that strong investment returns will continue to offset unprofitable underwriting, Mr. Duperreault said.

Since the mid-1980s, there has been a general decline in the frequency and severity of losses, "but that has been overcompensated in pricing," he said.

"Interest rates are at an all-time low, the stock market is correcting and cash flow is negative," he said.

In light of those factors, "there has to be a correction, just like there was a stock market correction," Mr. Duperreault said. But the timing of such a correction is unpredictable, he said, noting that just five months ago that there was no limit in sight to the soaring stock market.

"We see more and more problems developing" as the stock market pushes reinsurers to meet earnings expectations, said Richard E. Cole, chairman and CEO of Chartwell Re. "If there's a big event, along with a stock market downturn, there could be a turn in the market," he said.

Even without a significant loss, some reinsurance companies that have been writing business at exceedingly low rates, buoyed by interest income, may find themselves in trouble.

The key drivers for the current market are overcapitalization and strong investment returns, said Brian M. O'Hara, chairman and chief executive officer of X.L. Insurance Co. Ltd. in Hamilton, Bermuda. Bad underwriting results have largely been masked by strong investment returns and the release of reserves, he said.

"We speculate that there has been a lot of underreserving over the past two to three years. The market may be running out of old reserves to release," he said.

Against shareholder pressures and lower investment gains, this means changes for the industry, Mr. O'Hara predicted.

"More and more, there will be segmented changes, though, and not a broad market turn," he said. "We're in the middle of a big change, and I love change, because it creates opportunity," he added.

"The last three years have been unique because of underwriting results, low losses and strong investment returns. In 1998 or 1999, that will change," said Donald S. Watson, director of reinsurance ratings for Standard & Poor's Corp. in New York.

"The low loss ratios of 1996, '96 and '97 we won't see again," he predicted.

In the current environment, obtaining upgraded ratings will be difficult for reinsurers, Mr. Watson said. Upgrades will occur but will be less frequent, he said. Also, some negative ratings may emerge as capital is depleted, he added.

"We don't want to rate at the top of the cycle, but through the cycle. We need to look at the ability to sustain earnings and growth," Mr. Watson said.

The inability to grow premiums in the soft market and the increase in smaller catastrophe losses could hurt some reinsurers, said Benito Pagnanelli, deputy general manager of Assicurazioni Generali S.p.A. of Trieste, Italy.

"The premium in the market is not growing, yet everybody is trying to increase their market share. Sometimes market share can mean a market share of losses," he said.

But some reinsurance executives say they must push to keep rates up in certain lines, in spite of all the "naysayers" in the market.

"Rates have to go up," said William J. Adamson, chief executive officer of CNA Re in Chicago. "Pricing assumptions are made on achieving certain investment returns. If there were a broad recession, you would see rates firm."

In each product line, reinsurers must determine an appropriate rate of return to bet their surplus on, he said. "We have to begin to increase rates in certain areas, and so do our clients," he added.

The trick will be doing so without driving customers to other reinsurers, Mr. Adamson said.

"You have to stand up to clients, go to the edge of the precipice without falling in," he said.

"We see some instances with ceding companies where we took rates up," Mr. Adamson said, pointing for example to some professional liability or speciality lines.

While rates were not raised a great deal, he said, CNA Re was able to raise rates in cases where the cedent was bringing rates up, or in cases where rates were inadequate for the exposure. This is easier to do with long-term customers, who tend to recognize the need for "ebb and flow" over time and won't balk if rates go up, he add.

Reinsurers also have offered clients reasons to stay with them other than capacity and price, said Mr. Iles of Aon.

"If they are all the same, it is not going to work. Reinsurers have got to be right on top of all the changes taking place, like the financial vehicles and total balance sheet protection. Insurance companies don't want to transfer conventional risks, they want to transfer the unconventional risks," he said.

Reinsurers need to help cedents cover risks such as pollution, currency risks and investment risks, Mr. Iles said. "If all reinsurers are going to do is help insurers transfer risk that the insurers would rather run themselves, then they will be out of business," he added.

Brokers, too, must seek to offer cedents more than traditional risk transfer services if they are to succeed in the future, said Brandon Sweitzer, president and chief executive officer of Guy Carpenter & Co. Inc. in New York.

"We have to be interested in the whole range of analytical and consultative activities that improve the profitability of our clients," he said.

Reinsurance brokers should be able to offer a full range of services to cedents, Mr. Sweitzer said, including: risk transfer; advice on Year 2000 issues; mergers and acquisitions; runoff services; administrative services; catastrophe modeling; joint venture opportunities; and program ideas.

"It's not just 'How can I work on your reinsurance program?' That is still very important, and it's the bedrock of our business, but the vision is to be involved in any critical decision facing an insurance or reinsurance executive," Mr. Sweitzer said.