Being in Monte Carlo is like being stuck in a time warp. In the ever-changing world of insurance and reinsurance it is comforting escapism to be sat once again in the Café de Paris, gazing across Casino Square at the elegant façade of the Hotel de Paris.

The yearly gathering, back-to-back meetings, endless parties and dinners defy any turbulence back in the real world. Belying every complaint about crazy schedules, late nights and transport dilemmas lays a wistful smile. You're really dying to get back to the organised chaos of the Rendez-Vous de Septembre. There are worse places to work.

Every so often, reality encroaches upon the reinsurance professional's sanctuary. Sometimes with a sting. No one will ever forget hearing the terrible news on September 11 2001.

Three years ago in Monte Carlo, everyone watched in disbelief as yet another storm was brewing in the North Atlantic. Hurricane Ivan intensified into a category 5 storm as it passed Grand Cayman on 11 September 2004. Frances and Charley had already caused $23bn worth of damage in the US.

Two years ago, the true magnitude of Hurricane Katrina was only just becoming evident. Loss estimates were revised upwards and upwards again until at $40bn it became clear Katrina would have a lasting impact. This was truly a market-changing loss.

Last year, with the exception of a few nervous Bermudian executives (tracking the movement of Hurricane Helene), delegates were granted a much-needed breather. Business was done, champagne was drunk, much money was spent and those from temperate climes got one last blast of summer. We were still talking about Katrina.

But how the context had changed. The industry, with some help from revised catastrophe models and enthusiastic capital market investors, had turned disaster into opportunity. We know how that story ends: record breaking profits and so much excess capital that incredibly, firms still don't know what to do with it all.

“All it requires is another Hurricane Dean on a different rooute and we'll be back to square one

Helen Yates, Editor Global Reinsurance

Can the good times last? It's unlikely. The reinsurance cycle is like a rollercoaster and what goes up must come down. Thankfully, though, gravity is not something it contends with. The momentum of prices coming down is likely to be far slower than the speed at which they rose two years ago. The cycle may even be less volatile than has been past experience.

Disposable capacity in the form of sidecars and other capital market solutions is one reason why. Hedge fund investors will up their involvement where they sense opportunity and decrease it when rates come down. There are also parts of the business where capacity is still harder to come by and where prices are expected to remain firm, especially retrocession and US property catastrophe rates.

There is no escaping the reality that competition and softening rates will affect many lines of business in the run-up to the 1 January renewals. It comes down to simple economics. New reinsurance entrants and the ongoing pressure to diversify mean many sectors are now overwhelmed and there's simply not enough profitable business to go around.

The competition is fierce. This year has already seen a number of Bermuda players branch out into new markets, including Lloyd's and the US. Well-established players have also flocked to emerging markets in Asia, South America and the Middle East. In a bid to win new business, have they succumbed to rate slashing?

How far prices slip in the next few months will be testament to reinsurance underwriters. Their ability to continue underwriting for a profit in the midst of these competitive pressures will determine how low we go. Of course, all it requires is another Hurricane Dean on a different route through the Caribbean and we'll be back to square one.

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