MUNICH The world's biggest reinsurer, Munich Re (MUVGn.DE), on Tuesday reported a 35 percent fall in second-quarter net profit due to more than 600 million euros ($794 million) in damage claims that included the heavy floods in central Europe in June.
This contrasted with the relatively low claims for Munich Re and the European reinsurance sector as a whole in the first quarter.
"Unlike the first quarter of 2013, the second quarter was significantly affected by major losses," Chief Executive Nikolaus von Bomhard said in a statement. He said this showed the need to be careful in basing long-term result estimates on the basis of just one quarter.
The business environment was also tough because of low interest rates, which crimp income from Munich Re's investments, he said.
The group's quarterly net profit came in at 529 million euros after minorities, compared with the average forecast of 542 million euros in a Reuters poll and the 808 million euros in the year-earlier quarter.
The reinsurer's shares fell 4.4 percent in early trading, before paring losses to trade down 3.6 percent at 147.20 euros by 0708 GMT. The DAX .GDAXI index of German blue chip companies was flat.
Despite missing second-quarter expectations, Munich Re said it was well on track to reach its full year goal of net profit close to 3 billion euros.
Analysts expect the reinsurer to produce just over 3 billion euros in net profit this year, according to the poll.
Damage claims from flooding in central Europe cost 230 million euros, but the quarter was also marked by major man-made losses, Munich Re said.
The company had estimated in July that Europe's insurance industry would face around 3 billion euros in damage claims from the floods in May and June, which hit Germany and neighboring countries.
Munich Re's business is to help insurers cope with big damage claims in return for part of the premium they receive.
In contract talks with insurance company clients to renew reinsurance cover from July 1, the volume of premiums remained stable but prices fell by around 0.9 percent, Munich Re said.
The reinsurer also noted substantial competitive pressures in the market for natural catastrophe risk cover.
DZ Bank analyst Thorsten Wenzel downplayed the significance of the price drop.
"Given the high capacity in the reinsurance market we believe the reported price decline in July renewals is moderate," Wenzel said in a note to clients.
The July contract renewals mainly affect business in the United States, Australia, New Zealand and Latin America, and represent about 13 percent of Munich Re's property and casualty business.
Munich Re shares have risen by about 8 percent since the start of the year, compared with a 12 percent gain at rival Swiss Re SRENH.VX and lagging the 16 percent rise in the STOXX Europe 600 insurance index .SXIP.
Data from StarMine, which weights analyst forecasts according to their track record, showed Munich Re trading at nearly 9 times 12-month forward earnings, in line with Swiss Re but at a premium to rival Hannover Re (HNRGn.DE), which trades at a multiple of 8.2.
Hannover Re reports second quarter results on Wednesday and Swiss Re on Thursday.
($1 = 0.7553 euros)
(Writing by Jonathan Gould; Editing by Peter Dinkloh and Jane Merriman)