A report on the reinsurance industry's July 1 contract renewals by global insurance broker Willis Group Holdings shows that rates are generally in steep decline.

A combination of factors, including an abundance of capital after a benign 2006 and increasing competition have applied downward pressure to the cost of reinsurance.

Just two years after the most expensive hurricane of all time, Katrina, which caused insured losses of more than $60 billion, Willis's reinsurance division Willis Re found that property catastrophe rates in in the US on average plunged between 15 and 20 percent.

Willis Re also observed that the industry is "undergoing a seminal change", with more competition from a range of reinsurance vehicles on the capital markets.

"In our April update, we reported that four macro factors, namely favourable 2006 financial results, continued capital infusion, diversifying reinsurer appetites, and the populist movement in the US, were working to depress reinsurance property pricing and in turn increase competition for other lines of business," Willis Re chief executive officer Peter Hearn said in the report. "These four factors continue to impact the marketplace unabated."

Mr. Hearn also noted there was less reinsurance premium around to compete for.

"While insurance and reinsurance prices are both dropping there is a differential in the pace of each markets' price decreases," Mr. Hearn wrote. "Insurers are being squeezed and they are struggling to make their 2007 budgets. Insurers are getting less money for the insurance they sell and they have to pay more for the reinsurance they buy.

"A common solution is to buy less reinsurance. There is, as a consequence, less premium in the reinsurance market. Reinsurers, trying to meet their own budgets are starting to compete more aggressively for the remaining more volatile business. This aggressive competition will soften the reinsurance market, and merger and acquisition activity will likely increase as pricing disciplines collapse."

Competition for traditional reinsurers was emerging from the capital markets, which had helped the industry survive the brutal 2004 and 2005 hurricane seasons.

"If the reinsurance market continues to soften, however, the development of new reinsurance capital market products may be momentarily delayed as insurers may find traditional reinsurance products a better value than the newer capital market products," Mr. Hearn said.

"The competitors are no longer merely other reinsurers. The competitors are capital markets, local governments, residual markets and self insurance. Willis Re welcomes such changes as we continue to provide consultative and structural advice across multilple products and disciplines to help our clients identify, quantify, and spread their risk."

The Willis Re report was the first report released by a major broker on the July renewals.