The reinsurance market continues to be bifurcated, with property catastrophe rates still rising while casualty lines continue to experience modest decreases due to competition, observers say.

The lack of major losses and diversification are the two main factors behind the softening casualty market.

"There seems to be a pretty much 'go as is' approach" in the casualty market, said William J. Adamson, chief executive officer of reinsurance intermediary Carvill America Inc. in Chicago.

"There's not been any major, major events or major crises, so I think it's pretty much business as usual, with normal market pressures, clients looking for some concessions and markets doing their best to hang on to whatever they've got," Mr. Adamson said.

There's "not a lot of action" in casualty, said Paul Karon, CEO of Benfield Group Ltd.'s U.S. division in Minneapolis. "Everybody's talking about property, still."

David Priebe, CEO-Europe for New York-based reinsurance intermediary Guy Carpenter & Co., a unit of Marsh Inc., said casualty pricing "will probably moderate as we move into '07, recognizing the favorable experience over the last two years" as well as "people's desire to build a diversified portfolio."

There have been no significant losses that would lead to increased rates, "so the competition is definitely increasing," said Damien Magarelli, an analyst with Standard & Poor's Corp. in New York. He estimates casualty rates for the most part are "flat to modestly down" by about 10%.

Arguably, reinsurers can still earn a margin on casualty business, but a continued decline into 2007 could reach a point "where companies will have to walk away from a lot more business than previously," said Mr. Magarelli.

Diversification is also a factor, say observers.

Steven K. Bolland, president of reinsurance intermediary Gill & Roeser in New York, said, "People are competing to diversify their books away from cat-related business, and therefore there is more competition going into the casualty lines." In addition, "most reinsurers had a good year," their capital base increased and they therefore want to leverage their capital. As a result, "I would imagine the casualty pricing will come under a little bit of pressure," he said.

William H. Eyre Jr., managing director and CEO of reinsurance intermediary Towers Perrin Reinsurance in Philadelphia, said, "The one area that could go flat or slightly up could be workers comp cat pricing," which will be determined by insurers' aggregate exposures to catastrophe-exposed areas.

Even where there is casualty competition, however, observers say it has been moderate.

"We continue to see a soft market, but nothing that I would call irrational, and I think it'll be based upon the experience of the client as opposed to any kind of a broad brush" used by reinsurers, said Michael D. O'Halleran, chairman and CEO of Chicago-based reinsurance intermediary Aon Re Global, a unit of Aon Corp.

"I don't think anything crazy is going to happen, but I think it'll continue to soften," said J. Paul Newsome, vp and senior equities analyst at A.G. Edwards & Sons Inc. in St. Louis.

Steve McElhiney, president of Dallas-based EWI Inc., a reinsurance intermediary said, "It's fortunately not a free fall, but I think year over year it's inevitable we're going to see some downward pressure on all casualty lines," he said.

John Gwynn, managing director at Memphis, Tenn.-based Morgan Keegan & Co., said that while "we don't seem to have reached the tipping point" that imperils balance sheets, "I think we're headed in that direction."

The year 2008 will be the time where "either something happens to change the rate activity" or "people start getting in the danger zones of repeating the '97-2001 period" of soft pricing and reserve inadequacies, Mr. Gwynn said.