Global reinsurance prices for January 1, 2009 renewals and are expected to remain firm for the April through July renewals, according to the latest report issued by Aon Benfield.

The broker's January 2009 Reinsurance Market Outlook, expects the April to July reinsurance renewal market to be similar to the January 1 market, with US hurricane and earthquake reinsurance pricing rising modestly, and pricing of other global natural perils holding firm.

But US hurricane-dominated programmes, especially those exposed in the state of Florida, could experience more significant price increases than others due to the potential inability of the Florida Hurricane Catastrophe Fund (FHCF) to fully finance its projected 2009 capacity in the uncertain municipal bond market, the report said.

The survey found that the loss of significant optional FHCF capacity or less confidence in its claims paying ability may greatly impact reinsurance renewals for Florida residential property insurers.

The financial and credit crisis as well as the 2008 hurricanes had a big effect on reinsurers, Aon Benfield said, and it is estimated that reinsurers will be entering 2009 with 15 to 20 percent less economic capital than last year. Reinsurers sustained more than $10 billion in ceded catastrophe losses in 2008, however, reinsurers have maintained the core capital required to underwrite risk, it concluded. "Reinsurers have demonstrated prudent capital management during the recent financial crisis, particularly when measured against other financial institutions," said Bryon Ehrhart, chief executive officer of Aon Benfield Analytics.

"Despite significant investment related losses, equity capital remains at appropriate levels to support underwriting risk for reinsurers. Moreover, reinsurers have very low debt leverage and comparatively very low total asset leverage, relative to banks who have struggled greatly during this financial crisis."

In addition, the report notes that the capital markets, who have played an increasing role in the mitigation of insurance risk, have also suffered from the recent financial turbulence. However, the multiple year structure of catastrophe bonds has helped cedents hedge capacity and price in the current firm market.

Meanwhile, the impact of the credit and liquidity crisis has been considerably worse for insurers than for reinsurers. For calendar year 2008, Aon Benfield estimates that insurer capital will decrease by 25 to 30 percent.

"Despite the erosion of insurer capital, only in limited circumstances have we seen the more stressed balance sheets driving additional reinsurance buying," Mr. Ehrhart said.