MONTE CARLO, Monaco--Casualty reinsurance is teetering around a tipping point, still balanced, but shaky enough to cause reinsurers to approach it cautiously for fear of nudging prices into a steeper decline.

In some lines, casualty rates have dipped as more insurers and reinsurers write for market share. The decreases are not significant, but enough to ring alarms at reinsurance companies that are leaving business on the table, rather than chasing it with low rates.

Uncertainty over claims could help keep prices up, though, said industry experts at the Rendez-Vous de Septembre earlier this month. There is speculation that professional liability losses arising from the fallout in the subprime credit crisis in the United States could keep casualty underwriters from letting prices fall too far.

As for now, casualty coverage is becoming more affordable.

"There is a clear trend of softening in the market," said Michel Lies, Zurich-based head of client markets at Swiss Reinsurance Co., in a press briefing at the Monte Carlo meeting. "There is a risk of seeing insurers fighting for market share and fighting with price," he said.

Capacity is available for casualty risks and that means there is no rush to maintain high prices, sources note.

"I am not hearing anything about an overall capacity shortage, which implies that rates are likely to be coming down across the board," said Bryan Joseph, London- based partner at PricewaterhouseCoopers L.L.C. "It is a watch-this-space year, rather than a steep decline," he said.

Hans-Dieter Rohlf, managing director for nonlife reinsurance in North America at Hannover Re Group, said during a briefing at the conference that, in the United States, "rate reductions on casualty reinsurance started to become reality" after July 1 renewals.

While the decreases were not massive, Mr. Rohlf said they did show up in directors and officers contracts, workers compensation and umbrella accounts, leading the reinsurer to begin to cut back on its North American casualty writings.

Hannover Re plans to look for U.S. casualty business in lines where competition is not intense, said Mr. Rohlf. "Whether we will always be able to make up for the volume, which we are losing and which we are kicking out, I doubt," he said.

"Volume will come down" at Hannover Re, Mr. Rohlf said. "But rates? Not necessarily. Particularly if we let the business that is most competitive go away."

Mr. Lies said Swiss Re also backed away from business where it was unable to get the price it wanted. "Capacity will be withdrawn where prices are not adequate, most notably in U.S. casualty," he said. "We've already done that in the renewal for July 2007. We do not plan to stop that if the trend in the U.S. market continues to go in the direction it is going. We do not want to be a victim of this trend, and if there is dislocation, well, there will be dislocation."

European casualty rates are following the same general trends as the U.S. casualty market, said Patrick Thiele, president and chief executive officer of PartnerRe Ltd. "Losses have been under quite good control for the past four or five years. Frequency has gone down, but severity has gone up."

Four years of good results have led to increased competition, Mr. Thiele said. "But the competition is still understandable and it is not at an unacceptable level."

Reinsurers, brokers and other sources at the conference said the industry is closely watching developments in the U.S. credit crisis and is particularly concerned about D&O or errors and omissions claims that could surface.

Mark Rouck of Fitch Ratings Ltd. in Chicago said rates for D&O insurance are falling "quite quickly" in the United States and Europe. But the threat of potential claims from the subprime crisis may serve to halt the rate slide, he added.

The subprime problems could generate claims if shareholders in the companies involved in the crisis are unhappy with falling stock prices, sources said.

"If your share price drops, you have a D&O exposure," said David Watson, president and chief executive officer of XL Re Europe Ltd. in Dublin, Ireland. Reinsurers are watching the situation, but it is too early to tell if there will be sizable or numerous claims, he said.

XL Re has no "material" exposure to the subprime crisis on the investment side, said Mr. Watson. And XL Re does not expect a large impact from D&O or professional indemnity-type claims, he added.

The subprime crisis also has turned casualty reinsurers' attention to their terms and conditions, Mr. Lies said. There is confusion over the D&O exposure related to the crisis, he noted, which means policy terms are not clear. Swiss Re views itself as "safe because of the work we have done in terms and conditions" in D&O coverage, he said. "That is why we strongly believe that terms and conditions discipline in casualty lines is at least as important as pricing."

The impact of the subprime crisis on D&O is unknown at the moment, "but the potential is there" for significant claims, said John Berger, CEO of Hamilton, Bermuda-based Harbor Point Ltd.

As some reinsurers practice underwriting discipline, others are not, according to Mr. Lies.

"I think the perceived good results of the past brought many people to the conviction that they can begin to compete in market share," he said during an interview at the conference. "It is always the same story; you have good results in the past so you have to increase market share. And there is no way to increase market share without decreasing the price. And we are seeing that happen."

Despite the uncertainty around casualty business, there are some signs that it can remain a safe line of business for underwriters.

So far, competition has been mostly driven by price cuts and casualty underwriters do not seem to be bending much on terms and conditions as a way to win new accounts, Mr. Lies said.

In Germany, there is a "flight to quality" in casualty reinsurance, said Michael Pickel, a member of the executive board at Hannover Re, in a press briefing in Monte Carlo. "The bigger players are dominating the market and, so far, it is a firm market. I do not see any pressure at all on the pricing levels or conditions."

And underwriting discipline seems to be more in vogue these days, said Thomas Hess, chief economist and head of economic research and consulting at Swiss Re in Zurich.

"It is very much a question of discipline on the primary side in the commercial lines business," said Mr. Hess. "When you look at the past, one of the weak spots of insurance and reinsurance was the casualty business, particularly in the United States and United Kingdom." In those locations, market softening took hold in past cycles and the depth of the price declines was unanticipated. "Suddenly, the industry realized that it had accumulated losses of underreserved business," Mr. Hess said.

"With improved processes and better underwriting data, there is a chance that this will be prevented from happening again. But that is not clear," he warned. "We have a means to get a handle on that and I think the big insurers and reinsurers should be able to do that."

Discipline also comes from external sources, Mr. Hess said. "Rating agencies and financial analysts closely monitor these developments and put pressure on the industry to stay prudent. This imposes discipline."

Gavin Souter and Sarah Veysey contributed to this report.