Overcapacity, reduced demand and fewer catastrophes have contributed to a decline in January reinsurance renewal rates.

US property catastrophe rates dropped by up to 25%, while international property renewals fell as much as 15%, according to Willis Re.

“A heady cocktail of converging factors has fuelled a soft buyers’ market in nearly all lines of business,” it says in its First View Renewals Report.

Reinsurer balance sheets have strengthened while new capital from non-traditional sources has grown to $US50 billion ($57 billion).

Last year the number of natural catastrophes was down by half on 2012, and the North Atlantic hurricane season recorded the lowest number of named storms since 1982, Willis Re says.

The general weakness also applies in Australia, with the impact of insurance-linked securities on the US also affecting this country, as traditional reinsurers look to other markets.

Standard & Poor’s (S&P) says rates for property catastrophe business, which dominates the January renewals, fell 10-15% in Europe, 15-25% in the US and up to 10% in the Asia-Pacific region.

Increasing competition has overtaken economic uncertainty as the leading risk for reinsurers, and premium decreases are forecast to curtail earnings this year and next, according to the ratings agency.

“Companies that are unable to navigate the difficult new landscape could experience negative rating actions,” S&P says. “The oversupply of reinsurance in tandem with reduced demand for it is reshaping the marketplace.”

Guy Carpenter’s Global Property Catastrophe Reinsurance Rate On Line Index, which reflects the percentage of premium charged for a unit of coverage, fell 11% at the renewal, with much of the decline driven by a 15% drop in US rates.

Prices also fell 15% in the UK and 10% in continental Europe, and risk-adjusted reductions of up to 20% were achieved in some cases.

“It is the first renewal in more than a decade where all major territories saw pricing move in the same direction, with some isolated exceptions,” Guy Carpenter says.

Germany and some parts of the Nordic region suffered significant catastrophe losses last year, while pricing increased in Canada after severe flooding.

Non-catastrophe prices also weakened as reinsurers deployed more capacity into those lines, according to Guy Carpenter.

Willis Re Chairman Peter Hearn says some larger reinsurers are offering more complex multi-class, multi-year deals to tackle market headwinds, while others are expanding into specialty lines or using 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,” he says.