Record capacity and low catastrophe losses have continued to fuel falling reinsurance rates at the January 1 renewals, according to reinsurance broker Aon Benfield.

The broker’s annual reinsurance market outlook says reinsurers are lowering rates at the same pace, or faster, than insurers. It concludes that reinsurance renewal rates for the rest of 2011 are likely to fall at the same pace.

Aon Benfield Analytics Chairman Bryon Ehrhart says reinsurance “performed well” in 2010 for insurers. 

“It absorbed underwriting volatility from significant insured earthquakes in Chile and NZ and maintained sufficient capacity for orderly renewals in those markets.”

Aon Benfield says capacity in Australia and NZ remains “abundant” despite such events as the Christchurch earthquake and Melbourne and Perth hailstorms. The data was compiled prior to the recent flood and cyclone activity in Queensland and Victoria.

The broker says reinsurance programs which did not cede losses to reinsurers renewed at the same rates as the previous year, and that pricing across all classes remains based primarily on loss experience.

For the first nine months of 2010, total global reinsurance capacity increased by 17%, reaching a record high of $US470 billion ($464.5 billion).

Globally, the report said that with both reinsurers and insurers balance sheets have fully recovered, but demand for products is limited and the reinsurance market will continue to soften until demand increases.

“With major developed markets like the US, Germany, France, and the UK facing their second or third year-on-year of market-wide premium declines, even as gross domestic product returns to sequential growth, the partners need to turn their efforts to generating demand from new products or innovations on existing ones,” it said.