Reinsurers tout capacity to cover risks in 2010

* Munich Re, Swiss Re ready to meet rising insurer demand

* No plan to restrict liability limits if prices appropriate

* Sluggish economy keeping insurance premiums under pressure

* See big rises in premiums for natural catastrophe cover

* Munich Re shares edge down, Swiss Re and Hannover Re slump

(Adds analyst's comment, more detail, background)

By Alexander Huebner

BADEN-BADEN, Germany, Oct 26 (Reuters) - Reinsurers are touting strong bargaining positions in contract talks with their insurance company customers despite nagging worries about falling prices in some markets.

Munich Re (MUVGn.DE), the world's biggest reinsurer, said it would provide "substantial" reinsurance capacity to insurers for risk protection next year, while global No. 2 player Swiss Re (RUKN.VX) said it had a "large appetite" for quality business.

A few years ago, such references to increased supply of reinsurance capacity on the market would have raised prospects of competitive price cuts but reinsurers are pledging to be selective about risks and prices for their underwriting in 2010.

Demand for their products -- which help insurance companies spread the risk of damages from earthquakes, fires or hurricanes -- is expected to grow, boosted in part by new European rules on how insurers protect their capital against risks.

However, the sluggish economy was capping their customers' ability to buy reinsurance in the near term.

"While economic conditions have improved markedly in 2009, insurance premiums nevertheless remain under pressure due to dampened economic development and reduced purchasing power," Munich Re said in a statement on Monday.

Reinsurers are sitting down with their insurance company clients in this spa and casino town this week to start annual contract talks on the terms and prices for risk cover in 2010.

They could see some price erosion this year but would not allow their prices to collapse, analysts said.

"Prices probably will be down 5-10 percent in the January renewals round but I think there will still be a fair amount of discipline," said Collins Stewart analyst Ben Cohen.

Munich Re predicted a significant rise in premiums for natural catastrophes and other capital-intensive businesses for next year's contracts, and sideways movement in other segments.

The world's No. 4 player, Hannover Re (HNRGn.DE), said it expected further price declines in the competitive market for German industrial insurance.

Munich Re's share eased 0.3 percent to 110.25 euros by 1625 GMT, outpacing a 3.9 percent drop in the DJ Stoxx insurance index .SXIP.

Swiss Re and Hannover Re fell 3.8 percent and 5.0 percent, respectively.

GERMAN MOTOR

Reinsurers continue to fret over Germany's 20 billion euro ($30 billion) price war-ravaged motor insurance market, which has seen premiums fall over the last five years as listed insurers such as Allianz (ALVG.DE) and France's AXA (AXAF.PA) battled it out with not-for-profit mutuals like HUK Coburg.

Swiss Re said ahead of the Baden-Baden meetings that the "misguided development" of the German motor market meant it would be reviewing its business client by client to avoid any long-term crimping of profitability.

"We will become more selective in our underwriting, and are not prepared to participate in the erosion of motor prices," Swiss Re said.

HUK Coburg, the bane of the Germany's listed insurers, expects to rack up more than one million new motor insurance contracts this year as it tightens the gap with market leader Allianz.

"We will see record new business this year in the motor segment," HUK Chief Executive Wolfgang Weiler told Reuters in an interview last week.

Munich Re, Swiss Re and Hannover Re are due to report third-quarter earnings next week.

(Additional reporting by Jonathan Gould in Frankfurt and Christian Kraemer in Munich; editing by John Stonestreet)