October 20, 2014 / 2:52 PM / 3 years ago

UPDATE 1-Reinsurers see stable German prices amid declines elsewhere

* Munich Re, Hannover Re see stable German premiums

* Alternative capital finds it hard to make inroads

* Overall, price pressure still looms for 2015 (Adds Hannover Re, quotes, context)

By Alexander Hübner

BADEN-BADEN, Germany, Oct 20 (Reuters) - Germany's Munich Re and Hannover Re expect stable reinsurance prices in their home market next year, cushioning the blow from a slide in prices on world markets.

Munich and Hannover, the world's largest and third-largest reinsurers respectively, pointed to billions of euros in insurance damage claims from storms, hail and floods in Germany over the last year that ought to help underpin their pricing power relative to their insurance company clients.

"I see no reason why reinsurance prices should fall," Munich Re board member Ludger Arnoldussen told a news conference in the southwestern German resort town of Baden-Baden, where reinsurers and insurers have begun hammering out the terms of annual reinsurance contracts that will take effect on Jan. 1, 2015.

Reinsurers, whose business model is to help insurers pay big damage claims from storms or floods in exchange for part of the premium, are facing increasing competition from specialised funds offering reinsurance backed by pension and hedge funds.

These "alternative capital" competitors have helped drive down reinsurance prices in natural catastrophe cover in the United States, but the mathematical models they use to predict the likelihood of hurricanes or earthquakes are harder to apply elsewhere.

"There is no plausible (risk) modelling for Germany," said Hannover Re board member Michael Pickel.

Reinsurers say more frequent and intense weather-related claims, for example for damage to buildings' thermal insulation or solar installations, can cause results at insurance companies to become more volatile and argues in favour of flexible, tailor-made solutions from traditional reinsurers.

At the same time, Germany is not entirely immune as reinsurers battle to hold market share and keep their insurance company customers from switching to lower-cost competitors.

"I can imagine that the threat alone (of switching) could lead to a large price concession," Pickel said.

About two-thirds of Hannover Re's property-casualty reinsurance portfolio and more than half of Munich Re's is up for renewal as of Jan. 1.

Munich Re's chief financial officer said in a newspaper interview published on Monday that declining reinsurance prices would make it difficult to maintain profit levels at the world's largest reinsurer in 2015.

"Prices fell in the contract talks with our clients for 2014 and those drops are having their effect on 2015," Joerg Schneider told financial daily Handelsblatt.

Munich Re has targeted a net profit of 3 billion euros ($3.8 billion) in 2014 and made no change to this in August, when it published second-quarter results.

Analysts on average anticipate a 2.9 billion euro net profit for Munich Re in 2015, according to Thomson Reuters data, with individual estimates ranging from 2.4 billion to 3.3 billion.

In the last 30 days, four out 26 analysts who cover the stock have downgraded their estimates for net profit in 2015 by an average of almost 3 percent, the data also show.

Munich Re's share were down 2.3 percent by 1415 GMT, while Hannover Re's were 0.5 percent lower, compared with a 1.3 percent decline in the STOXX Europe 600 insurance index.

1 US dollar = 0.7831 euro Writing by Jonathan Gould; Editing by Mark Potter

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