Analysts are predicting tough bargaining when Europe's reinsurers meet next week in the German town of Baden-Baden.

The town will play host to meetings between insurers and their reinsurers as negotiations over the price of annual contracts begin. Reinsurers are expected to hit insurers with price hikes for their risk coverage next year.

Both sides held initial talks in the Mediterranean resort
of Monte Carlo during September when reinsurers signalled they would take a tougher line in pricing cover. Reinsurers are rumoured to want to charge customers up to 20% more to cover their insurance portfolios.

"Clients will be concerned about the implications of the recent downgrading of reinsurers by the rating agencies. They will want to know if they will mean a shortage of capacity," said Michael Handler, managing director of
reinsurance broker Guy Carpenter.

Reinsurers also claim they need to claw back money lost from the World Trade Center attacks. In addition, reinsurers have promised shareholders they will make underwriting profits to compensate for dwindling investment earnings.

Insurers are hampered by news that reinsurers have lost money from professional liability cover. Insurers are expecting price hikes of up to 50%.

Troubled German insurance group Gerling has already warned it would pull out of writing European non-life reinsurance business if it can't find an investor.

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