Reinsurers are experiencing slower growth as increased price competition heats up in the insurance industry and increased regulatory scrutiny of finite reinsurance is prompting buyers to shun the coverage, according to experts interviewed by CBS Marketwatch.

Finite reinsurance came under intense regulatory scrutiny earlier this year and became infamous for its role in the surrender of long-time American International Group chief executive Maurice (Hank) Greenberg.

With regulators investigating whether companies have used finite reinsurance to manipulate their financial statements and also discussing new rules to govern how finite agreements are disclosed and accounted for, buyers of such coverage have evaporated.

?Reinsurers are losing business and everyone?s scrambling,? Ira Zuckerman, an analyst at Stanford Group, told CBS Marketwatch. ?Companies are showing much slower growth or no growth at all.?

Reinsurer growth is also being hit as the insurance market softens. Increased competition amongst insurers results in them giving away less of their business to reinsurers in a bid to retain more of the premiums and future profit for themselves.

The world?s largest reinsurer Munich Re said earlier this month that it expects to collect less premium in 2005 than it did a year earlier. Hannover Re forecast stronger growth, however the fourth-largest reinsurer warned of double-digit declines in finite reinsurance premiums as the regulatory issues dampen demand.

Other reinsurers, including Bermuda-based Platinum Underwriters, PartnerRe Ltd. and XL Capital, also recently warned of similar challenges to premium growth.

Net premiums written during the first half of 2005 by 26 reinsurers tracked by the Reinsurance Association of America were 12 percent below the same period a year earlier, reported Marketwatch.

Dr. Sean Mooney, chief economist at Guy Carpenter, a division of Marsh & McLennan and the second-largest reinsurance broker in the world, told the website he expects premiums to continue to fall in 2006, albeit at a slower pace.

?We?re expecting the overall size of the reinsurance market to shrink,? Dr. Mooney said.

?Retentions are an important factor in the marketplace, particularly as a restraint on price,? he said. ?We?re seeing reinsurance prices come down and 2006 will probably be the third year of this.?

?Insurers are seeing their own underwriters having to compete on original insurance products while at same time trying to tell a growth story to Wall Street,? said Bryon Ehrhart, President of Aon Re Services, part of the largest reinsurance broker Aon Re, a unit of Aon Corp.

AIG, one of the largest reinsurance buyers in the world, purchased about $400 million less coverage during the second quarter than it did a year earlier, Chief executive Martin Sullivan said during a conference call with analysts earlier this month.

Sullivan said part of the reduction was caused by AIG?s switch into more consumer insurance which is typically backed by much less reinsurance.

However, UBS analyst Andrew Kligerman told Marketwatch that buying less reinsurance also helped grow AIG?s General Insurance division?s second-quarter net written premiums, which include the effect of reinsurance purchases. They rose four percent over the same period of the previous year Kligerman noted.

Gross written premiums, which don?t include the company?s reinsurance buying, were essentially flat in the period, he added.

Property and casualty insurers such as Chubb Corp. and St. Paul Travelers may also buy less reinsurance due to competition, Clifford Gallant, an analyst at Keefe, Bruyette & Woods, said.

He expects written premiums for the group of reinsurers he follows to be flat in 2005 and decline by between eight percent and ten percent in 2006.

PartnerRe said higher retentions by insurers ?resulted in reinsurers competing for a shrinking pool of premiums.? That exacerbated price declines, the company added.

XL Capital noted a combination of rate reductions and increased retentions by insurers.

Those companies that sell finite reinsurance ? a blend of traditional reinsurance and financing that transfers a smaller amount of risk from the buyer to the seller ? have felt extra pressure on their top lines this year.

Buyers have retreated, not wanting to be associated with the product, despite the fact that it?s a legitimate and useful tool for managing risk, experts said.

Platinum Underwriters, one of the few reinsurance companies that has a separate finite reinsurance division, saw that unit report a 14 percent drop in net written premiums during the second quarter versus a year ago and expects to write less new business in 2005 than 2004.

The company blamed the declines on the investigations in its latest SEC quarterly filing.

?If the buyers and sellers of these products perceive that the accounting, headline and regulatory risk has receded, demand will return,? Platinum said, while warning that it couldn?t predict the outcome of the probes.

Endurance Specialty Holdings recorded portions of 17 reinsurance contracts it entered into during the first half of 2005 as loans, rather than reinsurance.

While the agreements weren?t officially finite reinsurance, they shared some of the attributes of the product, Endurance explained in its second-quarter SEC filing.

The change lowered net premiums written during the first half of 2005 by $87 million to $1.09 billion. It also cut underwriting profit by $2 million to $145 million, Endurance said.

Endurance said its decision on how to account for these contracts required ?significant judgement and analysis, particularly with respect to assumptions about the variability and likelihood of potential future losses.?

Reinsurers are however experiencing growth in their stock price.

Part of the reason for such gains is that lower premium growth suggests reinsurers are being disciplined about turning away poorly prices business, some experts said.

?Price competition among reinsurers has been less intense than expected,? Stanford Group?s Mr. Zuckerman said. ?In previous cycles reinsurance led price declines, but this time it?s the reverse: Primary insurance rates are falling more.?