In the property and catastrophe field, reinsurers appear to be taking on materially less risk, since primary insurers are also taking on less risk, and are being forced to increase their reinsurance attachment points. These secondary companies can also achieve substantially higher premiums per unit of risk in each risk layer.

“As is intuitive in our view, less risk and higher premium per unit of risk should contribute to stronger ROEs, especially for niche property-cat reinsurers if the 2005 storm season doesn't repeat in 2006,” Mr. Small wrote.

In a survey of channel sources and industry consultants, Mr. Small found that risk managers are shopping their insurance programs less this year than last.

“When business does come up for bid, the brokerage market remains highly competitive, particularly for medium and small accounts where customers are more likely to switch, based solely on a program cost, and where business is more relationship driven,” he wrote.

The fact that risk managers from large companies are putting their business out to bid less frequency bodes well for Marsh McLennan, he said. Large brokerages, however, still face some disadvantages such as the fact that smaller players continue to accept contingent commissions, putting large brokers at a disadvantage when competing for small and midsized accounts.

“In addition, softening market conditions may pressure top-line growth,” Mr. Small wrote.