NEW YORK (Reuters) — Aon Re, the world’s largest reinsurance broker, said it expected US reinsurance rates to drop as much as 20 percent during the summer renewal season.Reinsurers provide backup coverage for property insurers such as Allstate Corp. to protect them against costly risks such as hurricanes. When reinsurance rates come down, property insurance rates usually do, too.

The decline in reinsurance rates follows an increase of between 50 percent and 100 percent last year in the Gulf.

In 2005, three storms — Katrina, Rita and Wilma — caused more than $68 billion of insured losses. Both insurers and reinsurers raised rates in 2006 to make up these losses.

But 2006 was a hurricane-free year, and there is now an abundance of capital in the insurance industry. Catastrophe bonds and “sidecars,” which insurers use to get additional capacity, have added $8 billion to the market, Aon Re said.

In addition, the expansion of Florida’s Hurricane Catastrophe Fund, a state-backed fund that increases property insurers’ access to reinsurance coverage at below-market rates, will free up to $14 billion of reinsurance funds searching for clients, Aon Re said.

In such a market, insurers will generally find sufficient capacity at the right terms, said Byron Ehrhart, chief executive of Aon Re Services. Reinsurance policies for home insurers in the United States are likely to be flat to down 20 percent in the second half of 2007, with up to 25 percent more capacity. Standard commercial lines could see as much as 15 percent lower rates, Aon Re said.

In Europe and other areas, where rates did not rise as much in 2006, they are likely to be flat to lower by up to 15 percent. Reinsurance everywhere will be plentiful, Aon Re said.

Aon Re said factors that could make reinsurance prices rise included consolidation in the reinsurance industry. Bermuda reinsurers are seen as possible merger and acquisition candidates. Reinsurers may also face pressure to return money to shareholders in the form of stock buybacks, Aon Re said.

Aon Re is a unit of insurance broker Aon Corp., one of the world’s two largest insurance brokers. Marsh & McLennan Companies Inc. is the other.

The third-largest broker Willis Group yesterday said April 1 renewals had shown rates that were “flat or falling” — a trend it expects to continue.

In its reinsurance review of the marketplace, entitled “Few Surprises”, Willis covers five territories and 14 classes of business.

Competition, capacity, and strong balance sheets are the key factors driving property reinsurance prices and increasing competition in other lines, Willis said.

It pointed out that the industry was in “robust shape”, having reported record profits for 2006.

It added that “the industry’s financial re-birth has attracted new capital, for example eight new property and casualty reinsurers in Bermuda in Quarter 4 2006, as well as four new Lloyd’s syndicates”.

Several markets had sought to increase writings in casualty and other lines to offset key zone property exposure.

The increasing global interest in reinsurance legislation and regulation had the potential to impact both price and capacity, Willis added, citing the Florida legislation that resulted in the legislative expansion of the Florida Hurricane Catastrophe Fund.

“The impact of this change has not yet become apparent and in particular, comments that changes in Florida could impact non-US catastrophe prices have proven unfounded at April 1,” Willis said.