The resolve of reinsurers will be tested in 2005 as managers seek to balance the need to maintain underwriting volumes with the need to reduce exposure, said Standard & Poor's (S&P).

It said some insurers had already indicated that they would reduce their level of exposure to those lines of business that had peaked, said the company.

"The rhetoric is encouraging," said S&P credit analyst Stephen Searby. "It is also critical in order to avoid a repeat of the severe damage done to reinsurers' financial strength in the last soft cycle."

But in a new report, S&P said the level of success achieved by the market in rebalancing its portfolios was likely to vary between companies.

It would be as dependent on the sophistication and accuracy of price-monitoring as on the ability to maintain current underwriting volumes.

"The reductions in exposure will be combined with the underlying price reductions and are therefore likely to result in a material decline in premium volumes over the next few years," said Searby.