The January renewals will reflect the first time the decline in reinsurance pricing has slowed since the credit crisis began, Aon said.

The firm predicted that if significant insured catastrophes occur before Jan. 1, 2009, the fast pace of rebuilding capacity will be unprecedented since the reinsurance and insurance markets are now aligned with sufficient existing and contingent (e.g. sidecar reinsurance instruments) capital providers.

Mr. Zaffino at Guy Carpenter noted that the good underwriting seen so far will require even “more discipline going forward,” adding that there is another potential issue.

“Traditionally, major property catastrophe losses have had the greatest impact of pricing,” he said. “But today we're witnessing a new type of catastrophe and it hasn't found its way all the way through the insurance industry yet, and that is the financial catastrophe around subprime.”

This issue could potentially impact “both sides of the balance sheet,” he said. “We've seen a lot of challenge in the market-to-market on the balance sheet, but we have not seen the full implication of how it is going to impact directors and officers and errors and omissions on the insurance side.”

This is because there is “a little bit of a lag,” he said. “It's not a real long-tail line, but it certainly takes some time before that manifests.”

Christopher Klein, head of Guy Carpenter global business intelligence, commented on the effect market conditions will have on pricing. “Storms and subprime can't be ignored, but there also are other factors contributing to pricing trends,” he said.

Mr. Klein explained that carriers are continuing to return capital through share buybacks, “extraordinary dividends and things like that. We think that they're tending not to burn it through chasing market share.”

He said that when faced with the choice of writing cheaper business or withdrawing capacity, many reinsurers are choosing the latter.

“We need to put the credit crisis in perspective, he said. “Yes, it's a significant event, it has brought economic damage, it has affected our industry and it will continue to do so.” However, he noted that reinsurance and insurance carriers have “not borne the major brunt of the losses in this–that's been the banks, because they don't manage the same variety of risks that we do.”

Mr. Klein emphasized, “Reinsurers are in the business of managing risk, it's what we do, so we shouldn't be afraid of it.”

To date, for the insurance and reinsurance industries, he said the subprime issue has been “an earnings event; it's not yet a major capital event.”

He added that calculations comparing the insurance industry to book value of the banking sector as of June 30, 2007, compared with consensus estimates as of a few days ago showed that “taking into account all the capital we've lost and all the capital that's come in through recapitalizations, the insurance/reinsurance industry is off by about 6 percent in that 14-month period, in terms of capital, whereas the banks are something like 14 percent.”

This shows there is “substantially more damage in that particular sector,” he said. “We may want to consider what that tells us about the risk management capabilities of our respective sectors.”

He emphasized that this shows that “insurers have not been brought to their knees, unlike a number of big, brand name banks. There have been significant losses, but there is still plenty of capital available.”

He also noted that some of the implications of today's market conditions “won't become clear until the next very large catastrophe.” He added that “if the credit crisis persists, and if we have a major shock loss to the industry, we could find ourselves facing a post loss liquidity crunch.”

Mr. Klein said that regarding pricing, “which is always a primary topic here at Monte Carlo, rates have come down throughout the year, continue to come down–we expect them to continue through Jan. 1–but we think they may be below double-digit increases.”

The July 1 renewal period saw rates dropping by about 10 percent on average, he said, compared to 6 percent last year.

“There is a general view that reinsurers are being more disciplined about pricing than primary companies,” Mr. Klein said. “Reinsurers have enjoyed several years free of losses and the profitability that comes with that.”