Reinsurance capital has grown to a record $US575 billion ($725 billion), including an unprecedented $US62 billion ($78 billion) of alternative capital, Aon Benfield says.

Financial security in the sector has never been higher, as reinsurers take record low risk per unit of capital, according to the global reinsurance broker’s latest market outlook.

The price of traditional reinsurance has fallen due to “disruptive alternative capital”, which grew 25% last year compared with 6% growth in total global reinsurance capital.

But Head of Broking for Aon Benfield Australia John Carroll told insuranceNEWS.com.au prices in this region have yet to bottom out.

“We are still seeing catastrophe rates in Australia at 10-15% above pre-2011 levels,” he said. “I still feel there is room for rates to come down.”

Mr Carroll says the lower rates are technically justified, and reinsurers are starting to embrace the influx of alternative capital.

“It is disruptive to pricing levels, but not to the value proposition of reinsurance,” he said.

Alternative capital is here to stay and Mr Carroll does not expect any knee-jerk withdrawal, although a spate of shock losses or a rebound in US interest rates would have an impact.

Insured global catastrophe losses last year were at their lowest since 2009, declining for the third consecutive year following record losses in 2011.

The bulk of alternative capital is deployed in property catastrophe risks, making up 40-50% of capital in this area.

The report says fears disruption will spread to other sectors of the reinsurance market are overblown.

Meanwhile, AM Best’s latest global reinsurance briefing says disciplined underwriting is more crucial than ever as intense competition leads to lower underwriting margins in an overcapitalised sector.

An increase in merger and acquisition activity is expected as companies become increasingly cautious on the business they write, the ratings agency says.

“The cultural barriers that have been cited in the past as obstacles to consolidation may become less of a factor if companies shrink to where they can no longer compete in this increasingly global market.

“Companies with well-diversified businesses and a global reach will likely only get larger as smaller players put themselves up for sale or seek strategic partnerships to survive.”