The most important time in the reinsurance business is upon us: the January renewal. The pricing and market conditions that shape the risk-transfer prices paid by insurance companies now set the tone for the transactions to follow for the rest of the year (usually at the beginnings of April, June and July), and 2010 looks like it will provide a drastic departure from 2009. After enduring both the global financial crisis and Hurricanes Gustav and Ike in late 2008, the reinsurance industry recovered quickly, and as the 2010 renewal approached, it was evident that reinsurance rates would decline.

According to Aon Benfield's (AON) report on the Jan. 1, 2010 reinsurance renewal, Remarkable Recovery, increases on reinsurance company balance sheets from the March 2009 lows – in conjunction with low catastrophe insurance losses – put downward pressure on reinsurance rates, with property-catastrophe coverage costing 5% to 15% less than it did a year earlier.

Just last week, Berkshire Hathaway's (NYSE: BRK.A) rosy 1st quarter earnings report made note of how the relatively tranquil weather of 2006 helped its re-insurance business generate handsome profits. Looking around the country today, with L.A. and Georgia threatened by fire, the Midwest flooded and one of the earliest tropical storms in history battering Florida, I wonder what this bodes for such companies in 2007?

In 2006, the ISO's Property Claims Services estimates, U.S. firms paid out $9.2 billion for catastrophic losses, in comparison to $61.2 billion in 2005. These figures make it starkly clear how difficult it is to forecast financial performance for the re-insurance market that absorbs this risk.

Unfortunately, forecasters generally expect a more active storm season this year, as the El Niño that is credited with softening 2006 weather has dissipated.

Totals from the 1st quarter of 2007 were only $1.22 billion, mostly as a result of storms that generated tornadoes. However, historically almost half of all catastrophic loss claims are caused by tropical storms and hurricanes, and that season is just beginning. The second most common loss engine is the tornado, and we're still in the midst of an active season.