MONTE CARLO (Bloomberg)— Investors such as hedge funds and private equity firms are helping to prevent a sharp decline of reinsurance rates that would threaten the industry's profitability, Moody's Investors Service said.

"Hedge funds' and private equity investors' focus on returns are likely to bring more discipline into the reinsurance market," said Moody's Credit Analyst Dominic Simpson in Monte Carlo. Such investors have "continued to play an important role in development of the reinsurance market over the last two years."

Swiss Reinsurance and Munich Re, the world's biggest reinsurers, are meeting clients this week in Monte Carlo to begin negotiating contracts for 2008. Reinsurers help insurers shoulder risks in exchange for premium payments. Hedge funds or private equity companies invest in reinsurers as well as in special-purpose vehicles such as so-called sidecars, which let them bet on specific risks.

Reinsurers' "profitability in 2006 was as good as it gets and discipline is the key to maintain credit ratings and outlooks," Mr. Simpson said.