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Munich Re's profits rise despite jump in claims

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(Reuters) — Munich Reinsurance Co. reported a 45% rise in its second-quarter net profit on Thursday but disappointed investors with a surprise jump in claims and evidence of continued pricing pressures.

Net profit in the three months ended June rose to €765 million ($1.03 billion) from €528 million ($686.9 million) in the same period last year, driven by a two-thirds rise in investment income while property/casualty reinsurance was hit by a rise in disaster claims like the April earthquake in Chile.

"The quality of the result is disappointing at first glance given a weaker-than-expected reinsurance underwriting result and a higher investment result," DZ Bank analyst Thorsten Wenzel said in a note to clients.

However, Munich Re said €180 million ($241.7 million) in claims from a snowstorm in Japan in February were not booked until the second quarter, distorting results. A series of about 25 fires, explosions and other man-made disasters also weighed on the April-June period.

Payouts for major losses rose to €617 million from €605 million ($828.6 million from $787.1 million) a year earlier, the company said.

Munich Re is battling widespread weakness in reinsurance prices and has been developing tailor-made products for its insurance company clients to lessen its dependence on the traditional reinsurance market.

Pension and hedge fund investors have poured capital into specialized funds that offer reinsurance, hoping to earn more profit than they can elsewhere in the capital markets.

While this has put them into direct competition with products offered by traditional players like Munich Re, Swiss Re Ltd. and Hannover Re S.E., reinsurers have also hurt themselves by undercutting each other's prices, said Munich Re board member Torsten Jeworrek.

"It is not very economically sensible behavior," Mr. Jeworrek told a news conference, adding that Munich Re had chosen not to renew big chunks of business when prices were too low for the risk.

Munich Re's premium volume fell by more than 7%, of which 3.6 percentage points was due to weaker pricing, in the latest round of renewing contracts with insurance company clients in July.

That stands in sharp contrast to Swiss Re, which on Wednesday reported an 8% increase in premium volume in the July renewals.

Chief Executive Nikolaus von Bomhard declined to comment on Swiss Re's increase but said there were signs that the downtrend was slowing.

"I am cautiously optimistic that the market will find a bottom in the course of this year," he told the news conference.

The company made no change to its target of earning a net profit of €3 billion ($4.03 billion) this year.

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