NEW YORK (Bloomberg) - Reinsurance rate increases are below expectations as the US economy prompts insurers to cut purchases and American International Group Inc. offers "competitive" prices to keep customers, FBR Capital Markets said.

"The economic slowdown has caused many insurance buyers to buy less reinsurance," Bijan Moazami, an FBR Capital Markets analyst, wrote yesterday in a note to investors. "To the extent that AIG remains competitive on pricing to retain clients, the overall rate environment would face pressure, given its large market share."

Outside US catastrophe areas, rates have "struggled to show much real increase", Willis Group Holdings Ltd. wrote in a July 1 statement. Aon Corp. reported that July 1 US renewal rates were "consistent" with June 1 renewals and that prices "generally held firm" outside the US, Mr. Moazami said.

Reinsurers and brokers have been pressured as declines in insurance sales have eroded profits. Insurers have recorded at least $243 billion in write-downs and credit losses globally since the start of the credit crunch. Munich Re and Swiss Re, the world's largest reinsurers, contributed $8.3 billion, or 3.4 percent, to that figure, according to data compiled by Bloomberg.

"The July 1 renewal experience should serve as an incremental negative for Bermuda reinsurers and insurance brokers, both of which benefit from a hardening pricing environment," Mr. Moazami said. A lack of rate increase could hurt brokers with large consulting operations, such as Aon, Marsh & McLennan Cos. and Willis, he said.

AIG, which has received four US government bailouts since September, is being examined by New York and Pennsylvania because of claims it is distorting the market by charging too little for coverage, Kermitt Brooks, acting superintendent of the New York Insurance Department said earlier this month.

"A wounded 800-pound gorilla, on life support provided by the US government, is the last thing that the insurance industry needs," Moazami wrote.

Rates increased in the property and casualty area in the July renewal season, benefiting Bermuda reinsurers, MR. Moazami said. Capital intensive areas, including US catastrophes, increased about 10 to 15 percent, Willis said in its statement.