Reinsurance renewal prices have continued to fall across the board for 2008, leaving reinsurers exposed to taking a bigger hit in the event of a natural disaster.

Some areas of reinsurance are faring better than others, with the cost of marine reinsurance dropping only slightly and the price of reinsuring reinsurers against property losses also holding up, while US property reinsurance is "posting more precipitous declines", according to Bermuda-based insurance broker Wills.

Meanwhile, Wills reckons reinsurers' appetite for risk has not been affected by the credit crisis, with chief executive of Wills reinsurance arm, Peter Hears, claiming the industry is "showing signs of reverting to its historic pattern of feast or famine".

Rates have been reduced by 10 to 15 percent for reinsuring US insured portfolios against catastrophe risks, but, on the flipside, parts of reinsurance programmes hit by the UK's £3 billion ($5.95 billion) of flood claims have seen prices increase by about five percent.

"Despite a valiant attempt by reinsurers not to give in too much, they have cracked, but not in all areas," said James Vickers, chairman of Wills Re International.

Elsewhere, Guy Carpenter, the reinsurance arm of Marsh & McLennan, say that property catastrophe reinsurance rates fell by nine percent on average across all markets as of January 1.

"Barring large catastrophe losses in 2008, we expect to see the downward drift in rates that we have seen recently continue through 2008 and into 2009," Chris Klein, Guy Carpenter's global head of business intelligence said.

"Having said that, market conditions can be deceptive. The potential for severe earthquakes, floods and storms should remind us that the world remains a perilous place for risk bearers."

Yesterday, Guy Carpenter published 'Near Misses, Plentiful Reminders: Global Reinsurance Review January 2008', a briefing on major trends driving pricing and market conditions across the global reinsurance industry into 2008 and beyond.

The report reveals that property catastrophe reinsurance rates were down by an average of nine percent throughout all markets at the start of January 2008.

According to the briefing, cedents continued to take advantage of a buyer's market, with a number of this year's renewals closing late as buyers held out for lower rates in the soft market, with reinsurers experiencing lower rates and smaller lines as a result.

The softening of reinsurance markets was caused by a lack of large catastrophe losses, as buyers were driven by headline price, followed by terms and conditions, said the report.

Among its main findings were few large reinsured catastrophe losses in 2007, despite four earthquakes exceeding seven on the Richter scale and two Category 5 hurricanes making landfall, allied to other significant catastrophe events such as Windstorm Kyrill in Northern Europe, record floods in the UK, storms in Australia and wildfires in California and Greece, boosting reinsurers' balance sheets.

The report goes on to say that there are reasons to anticipate less of a boom-bust cycle in reinsurance markets, with changes at management level as reinsurance executives become more atuned with the demands of their owners and more focused on generating above average returns to shareholders.

"There certainly was no shortage of events in 2007, but the fact that frequency trumped severity led to balance sheet strength," said Sean Mooney, Guy Carpenter's chief economist.

"Excluding a major shock, we anticipate soft market conditions to prevail in most reinsurance markets for a number of years. The soft market following Hurricane Andrew in 1992 persisted for six years, and a protracted period without large losses will put further pressure on prices and increase the temptation to chase market share."

But, both Wills and Guy Carpenter believe the credit crunch has not meaningfully impacted on the January 1 renewal rates, with Wills saying reinsurance risks are still being transferred on to capital investors.

"The downturn in the wider credit markets has in no way dampened capital market appetite for insurance risk, as $1.4 billion of catastrophe bonds were issued in the last three months," said Mr. Hears.

Wills estimates $6.4 billion worth of catastrophe bonds were issued in the public markets in 2007, ahead of 2006's figure.