MUNICH, Germany—Insurance and reinsurance buyers in Europe and the rest of the world can look forward to a more competitive reinsurance market in 2007 than seen in 2006, according to the world's second-biggest reinsurance company Munich Reinsurance Co.

The German reinsurance group says that overall prices remain profitable for reinsurers, but predicts that competition will hot up and pressure will rise on rates, terms and conditions as the year progresses.

Munich Re said that it shed some €300 million of business at the year-end renewals, claiming that it refused to follow business where prices softened to "unattractive" rates.

The group said that rates were particularly unattractive for French and German motor business, international aviation fleet and Chinese property casualty business, which is described as a "highly competitive" market.

In 2005, the last reported year, the group reported total reinsurance premiums of €22 billion. The Munich-based reinsurance group renews roughly two-thirds of its multinational treaty business (not facultative) at year-end, corresponding to about €9 billion at the end of last year.

This means that the group wrote roughly 3% less business at year-end 2006 than it did at the end of 2005.

Despite walking away from €300 million of business, Munich Re said that the prices, terms and conditions negotiated on the reinsurance treaties at year-end were "again" in line with the risks.

"We are satisfied with the outcome of renewals at January 1. All in all, the price level is attractive and commensurate with the risks. However, competition is tougher. For the market, this was not a renewal for profitable growth," commented board member Torsten Jeworrek.

The group said that it acquired some €850 million of new business that showed "good profit potential." Where prices had come under pressure, it said it simply reduced exposures, decreased its share or withdrew completely.

The sector-wide ongoing retreat from proportional treaty business continued, as Munich Re said that its share of non-proportional business in the renewed portfolio rose to 23% from 21% the year before.

The main pluses for Munich Re at this renewal were for U.S. hurricane-exposed business, which it said that shown strong price increases on the previous year's renewal and were on a par with the July 1 renewals, major multinational treaties and agricultural business.

French and German motor business, international aviation fleet and Chinese markets were not so attractive.

"Munich Re removed capacity from the market if prices, terms and conditions were not adequate, giving up—for example—considerable shares of French and German motor business and international aviation fleet business. It also terminated unprofitable proportional treaties in the highly competitive Chinese market," said the company.

Munich Re said that "substantially less" capacity was available in the international retrocession markets than in previous years, resulting in "considerable" price increases. The company said that as it therefore retroceded "considerably less" business than in the past.

Looking forward to the rest of this year, Munich Re expects a more competitive, but still profitable, market.

"Globally ... competition is growing more intense. Prices are, nevertheless, at a profitable level on the whole. However, the effects of keener competition are likely to be evident at the other 2007 renewals (April 1: Japan and Korea; July1: parts of the U.S. market; Australia and the Latin American markets)," it stated.

Mr. Jeworrek continued: "There is no alternative to risk-adequate prices, terms and conditions. Winter Storm Kyrill was a clear demonstration of the growing threat of the natural hazards risk and rising loss potentials. We believe that higher demands on risk management and capital resources, and continued low interest rate levels will help to maintain market discipline on the whole."

The company said that it will report on the renewals in detail at its balance sheet press conference on February 28.