This year's global reinsurance market is stabilising as a flood of new capital balances the increase in demand from earlier "mega-catastrophes".

A new report from reinsurance broker intermediary Guy Carpenter suggests the market is returning to a downward phase in its cycle. This began in 2004 but was interrupted by record losses in 2004 and 2005 from events like Hurricanes Katrina, Wilma and Rita.

The world has seen relatively few catastrophic weather events since then and investors are again willing to take on those reinsurance risks. Start-ups and reinsurance sidecar programs have emerged, and the world's capital markets are again pricing catastrophe bonds at reasonable levels.

"If the central theme of global reinsurance markets in 2006 was increased demand, then the theme of 2007 is increased supply," the report said.

But it warns the risk of terrorism has increased over the past two years - particularly in Pakistan, the Middle East and the UK. But reinsurance prices in these risks have been partly offset by the likelihood that the US Government will make its current Terrorism Risk and Insurance Act more permanent.