LONDON (Bloomberg) — European banks spent the past 18 months attempting to convince regulators and investors they have sufficient reserves. The continent's reinsurers have the opposite problem: too much capital.

Earnings at reinsurers including Munich Re and Swiss Reinsurance Co., which help primary insurers shoulder risks, will fall this year as the highest levels of reserves on record prompt firms to compete for business, driving down premium rates, according to Fitch Ratings Ltd. Reinsurance companies and brokers gather in Monte Carlo starting over the weekend to begin talks with customers over January contract renewals.

Among the executives at the annual 'Rendezvous' meeting will be a large contingent from Bermuda.

"The capital positions are quite strong and we will continue to see price declines," said Markus Engels, who helps manage $1.8 trillion at Allianz Global Investors in Frankfurt. "The super-fat profits we've had for the last couple of years are gone."

The world's 70 biggest reinsurers are holding about $330 billion of capital beyond their regulatory requirements, almost 40 percent more than in 2008, according to data compiled by Fitch. That balance-sheet strength is prompting more competition among firms, causing U.S. property and casualty rates to fall to their lowest in 10 years, according to the Council of Insurance Agents and Brokers.

"We're expecting earnings to come under pressure over the next 12-24 months," said Chris Waterman, a senior credit analyst at Fitch. "Capital for the industry is actually better than it was before the financial crisis. That's leading to a softening rate environment."

Fitch and Standard & Poor's Ratings Services have "stable" outlooks on the reinsurance industry.

Record insured losses in the first half failed to prompt an increase in rates. February's 8.8-magnitude earthquake in Chile and European winter storm Xynthia raised insurers' losses to $22 billion in the first half, more than double the average loss for the period since 2000, according to Munich Re.

Despite the losses, rates for property insurance declined 12 percent on average in July, U.S. broker Guy Carpenter said. Swiss Re, the world's second-biggest reinsurer, said last month premium rates dropped by about three percent during the July policy renewal period and forecast "weaker industry profitability" in the future, without giving a timeframe.

"Abundant capacity has depressed pricing," said Chris Klein, director of reinsurance at Guy Carpenter.

A natural catastrophe costing the industry at least $30 billion would be needed for the premium rate environment to stem declines, according to Hiscox Ltd. chief executive officer Bronek Masojada. Aon Benfield Group Ltd. co-CEO Dominic Christian estimates a disaster costing $50 billion would be necessary to wipe out excess capital and force insurers to raise rates.

The last disaster with more than $30 billion of total losses was Hurricane Ike in 2008, according to Munich Re.

Low interest rates in the world's major economies may also remain a drag on insurers' earnings, as they squeeze investment returns, according to Mark Coleman, a credit analyst at Standard & Poor's.

"Persistent low interest rates continue to suppress rate adequacy and are producing returns we consider to be uneconomic," Coleman wrote in a September 6 note to clients. "This effect may be compounded if inflation takes hold."

One way to reduce the industry's capital reserves is to return money to shareholders, Allianz's Engels said. Munich Re, the world's biggest insurer, has so much spare capital that it plans to spend as much as 1 billion euros buying its own stock before April next year. The buyback programme was announced in 2007 and put on hold during the financial crisis.

"The market likes dividends more nowadays," Engels said. "Leaner capital management is definitely something positive. Investors will ask companies for higher payouts and tell them not to hoard capital."