The reinsurance sector slid into negative territory on 2014’s first day of equity market trading, a result of reports showing reinsurance rates for January renewals fell between 15 and 20 percent.

Bermuda reinsurers were the hardest hit with red ink bathing the January 2 numbers.

Validus Holdings was the biggest decliner, losing 4.8 percent. Other fallers included Arch, down 3.9 percent, PartnerRe and Platinum, both down 3.8 percent, and RenaissanceRe, which fell 3.3 percent.

The Bermuda Stock Exchange Insurance Index was down 32.71 points, or 2.2 percent, closing at 1454.04. However, yesterday’s decline comes after an annual gain of 30 percent for the index in 2013.

A soft market in renewals in most lines of business for 2014 resulted in the rates have plunged by up to 25 percent, a review by a reinsurance broker Willis Re said.

And company mergers are likely to rise in the new year as larger companies look to grow their businesses, while smaller, more vulnerable, ones look at maximising returns for shareholders.

John Cavanagh, CEO of Willis Re, said: “The key influence on the January 1 renewals has been overcapacity triggered by a number of converging factors.

“Strong 2013 results have bolstered traditional reinsurers’ already strong balance streets. New capital from non-traditional capital market sources has grown to reach $50 billion.

“These factors have been compounded by muted demand from buyers arising from the longer-term trend of better regulation, which has in turn led to a better understanding and management of tail risk, as well as the trend of major insurance groups to retain more reinsurance premium volume and risk on their own growing balance sheets.”

The start-of-the-year report said challenges to both traditional reinsurers and new capacity were “myriad”, including rate reductions, new capacity and market entrants, and low interest rates.

The report also singled out greater retention of reinsurance premiums by large buyers, diminishing reserve releases, expansion in terms and conditions and increasing regulatory oversight as factors in the softening of the market.

It added that soft market conditions were not unique to property catastrophe business, with rates down on most lines of business at the start of the year.

The report said: “Pricing margins on excess of loss business have been compressed and ceding commissions have increased on pro rata treaties for sought after clients with large ceded premium volumes.

Willis Re chairman Peter Hearn added: “Faced with these market headwinds, reinsurers are adopting a variety of strategies.

“Larger reinsurers are using their balance sheet strength and technical ability to offer more capacity and more complex, multi-class, multi-year deals.

“Others are expanding into speciality lines and many have developed multichannel capacity offerings seeking to use their underwriting expertise to deploy capacity on behalf of capital markets.

“Additionally, we have seen the rise of pooling arrangements that give smaller reinsurers the opportunity to access business they might not otherwise see in their local markets.”

The report said that the underwriting performance last year was a result of a low number of natural and man-made disasters — with the rate being half of that of 2012 — rather than strong market pricing and restrictive terms and conditions.

It added that US property catastrophe loss free reductions were between 10-25 percent, while reductions in Europe were between ten and 15 percent.

The report also said that mergers and acquisitions had increased heading into the new year.

It added: “Larger companies are looking to manufacture growth through mergers and acquisitions and strategically-challenged companies are beginning to accept that being acquired may be the best option for their shareholders.”