Munich Re AG, the world's largest reinsurer by gross premium income, Tuesday said third-quarter net profit fell 63% on a substantially lower contribution from investments and a negative impact from the weak euro, although claims for large disasters were moderate.
It also reiterated that it expects an after-tax profit in the fourth quarter and the full year, but stopped short of giving a more concrete guidance.
Third-quarter net profit fell to €286 million from €764 million, lower than analysts' forecasts of €542 million. The net investment result was down 39% to €1.35 billion from €2.20 billion, as it wrote down Greek sovereign debt to 39% of nominal value.
For the nine months, net profit tumbled to €75 million from €1.96 billion. In the nine months, the bill for major claims was a higher-than-budgeted €4 billion, of which €344 million came in the third quarter. Munich Re's forecast of a profit for the full year budgeted in up to €1 billion large disaster claims in the second half.
"We still envisage a positive consolidated result for 2011 as a whole," Chief Financial Officer Joerg Schneider said. "Munich Re will not be making a more concrete profit forecast than this because the final amount will be influenced considerably up to the last day of the year by the incidence of major losses and the volatility of the capital markets and exchange rates."
It also said it aims to keep the 2011 dividend stable at €6.25 a share.
Munich Re said the weaker euro caused a negative effect of €342 million on after-tax profit for the July-to-September period, when it fell against major currencies amid the sovereign debt crisis. Writing down the entire Greek sovereign bond portfolio to market value reduced after-tax profit by another €45 million in the quarter.
Munich Re said it reduced bond holdings in peripheral European countries—for instance it sold €1.4 billion in Italian bonds—while increasing government debt in core-euro area countries and developing markets such as South Africa, Brazil, India and Turkey, and corporate bond holdings.
It also took a €347 million hit from the lower value of stocks in its portfolio and strengthened reserves for Australian disability business by €148 million in the quarter.
Operating profit, which many investors perceive as a key barometer of operating performance, fell 27% to €839 million from €1.15 billion, worse than the forecast €902 million.
Munich Re shares initially slipped on the results but later bounced as operating results were largely in line with expectations, analysts said. Shares were recently up €1.01, or 1.1%, at €93.96, underperforming the DAX blue-chip index, which was up 2.2%.
The bigger-than-expected decline in net profit was owing to non-operating costs, such as the €342 million in foreign-exchange losses, said an analyst at Helvea. The analyst added that net profit may appear disappointing, but the sharp decline in net profit may be driven by accounting rather than underlying economic effects, as the underlying profitability remains solid and the insurer's capital position is robust.