Munich Re net profit falls 30% as investments falter

Munich Reinsurance Co.

(Reuters) — German reinsurer Munich Reinsurance Co. stuck to its full-year earnings forecast after posting a worse-than-expected 30% drop in third-quarter net profit due to writedowns on equities and derivatives.

The world's largest insurer is targeting full-year net profit of at least €3 billion ($3.30 billion) and has racked up €2.4 billion ($2.64 billion) in the first nine months, helped by unusually low damage claims from natural catastrophes.

However, third-quarter net profit of €520 million ($572.4 million) was well below analysts' average forecast of €670 million ($737.5 million) in a Reuters poll, as volatile financial markets crimped gains from asset sales and prompted writedowns on equities and derivatives.

Chief Financial Officer Joerg Schneider said he was confident of reaching the group's full-year profit target, despite the setback.

"We only need a normal (fourth) quarter," he told a conference call with journalists.

"The first month of the fourth quarter doesn't give us any indication that it will be worse (than normal) and that's why we expect to come out slightly above €3 billion," Mr. Schneider said.

Reinsurers such as Munich Re, Hannover Re S.E. and Swiss Re Ltd. act as a financial backstop for insurance companies, helping them pay for large damage claims from hurricanes or earthquakes in exchange for part of the premiums.

Munich Re's share pared early losses to trade down 0.3% by 1010 GMT, in line with the STOXX Europe 600 insurance index.

"We think the full-year 2015 goal is certainly reachable but also not extremely conservative," DZ Bank analyst Thorsten Wenzel said in a note to clients.

Mr. Schneider declined to give an earnings forecast for 2016 but said he expected "sideways" movement in insurance markets, with stabilization in reinsurance prices and a more mixed picture among insurance business lines.

Bernstein analyst Thomas Seidl said he expected share buybacks by Munich Re would help assuage investors.

"As long as we are in a general low-yield environment, we expect that capital actions will be able to set off the weaker earnings prospects of the group," he said in a research note.

Munich Re is about halfway through a €1 billion ($1.10 billion) share buyback to be completed by its shareholder meeting on April 27, 2016.

The operating result at struggling insurance unit Ergo fell by half. The unit's new head, Markus Riess, who joined from market leader Allianz S.E. this year, pledged to review Ergo's "entire value chain" and have specific plans ready by April next year.