The chronic shortage of retrocession insurance means reinsurers are being forced to write nett lines of reinsurance, according to reinsurers gathered in Baden-Baden, Germany, this week.

Any available retrocession cover is expensive and overburdened by stringent conditions, said reinsurers.

This means reinsurers only take on the amount of risk they could afford to pay out for in the event of a claim, without relying on transferring on part of the risk to another party.

International Co-operative and Mutual Insurance Federation (ICMIF) senior vice-president of reinsurance, Lars Erik Lundqvist, said: "As a trade organisation and reinsurance intermediary, we are worried about the effect of the retraction of retrocession.

"This means that people may only be able to write nett lines for our client members. Those that do sell retrocession coverage will be able to dictate stringent terms at very high prices."

"Those who are dependent on retrocessional cover are in a particularly weak position, due to the paucity of coverage and the rapidly escalating costs of retrocession," he said.

He added: "It is apparent that some companies may only be prepared to offer nett lines at this stage in the renewal season. Despite the abundant capacity promised from Bermuda, it is probable that most clients will still find it difficult to complete their programmes."

One irate reinsurance broker from a leading company complained: "No one is doing anything on retrocession. No-one knows if there is any capacity for it and that's a big problem.

"Retrocession creates capacity and, if people have to write nett lines, the capacity in the London Market shrinks considerably."

One property reinsurance underwriter added: "Retrocession is very expensive and may well be unavailable. It is very limited in coverage and you will not get terrorism coverage in the retrocession programme."