Reinsurer Munich Re AG said Wednesday the company's second-quarter net profit fell by 47 percent amid market turmoil and asset write-downs of ¤889 million ($1.38 billion). The Munich-based company said net profit in the April-June period fell to ¤599 million ($928 million) from ¤1.1 billion a year earlier. Gross premiums rose 1.2 percent to just more than ¤9 billion ($13.94 billion) compard with ¤8.9 billion a year ago. Reinsurers sell backup coverage to other insurers, spreading risk so the system can handle large or widespread losses. Munich Re also operates Ergo, one of Germany's biggest insurers, and Munich Reinsurance America Inc. Munich Re said its second quarter return on investments fell nearly 40 percent to ¤1.6 billion ($2.5 billion) from ¤2.5 billion a year ago, while the company's operating profit for the second quarter fell 33 percent to ¤1 billion ($1.55 billion) from ¤1.5 billion in the same quarter a year ago. Munich Re said those results were especially hit by price losses on stock exchanges and the falling value of the dollar, but that “given the turmoil on the financial markets, those are satisfactory.” For the first six months of the year, the company earned ¤1.4 billion ($2.17 billion), down 34.5 percent compared with nearly ¤2.1 billion in first half of 2007. Gross group premiums written for the first half were down just less than half a percent to ¤18.86 billion ($29.23 billion) from ¤18.93 billion and the company said its total amount of write-downs on equities of ¤1.2 billion ($1.9 billion) from January-June, though the figure was offset by ¤1.1 billion in write-ups on derivatives and hedging. The company said the reduction in gross premiums was directly attributable to the decline of the dollar's value, and that had exchange rates been the same as the first half in 2007, group gross premium volumes would have risen 4.4 percent. Last month, the company issued a profit warning, backing off its previous forecast of full-year profit between ¤3 billion and ¤3.4 billion ($4.7 billion and $5.3 billion), saying it now expected lower earnings - though “still well above ¤2 billion,” or $3.1 billion. Munich Re blamed the lower results and the downward outlook on a high oil price which was accelerating inflation worldwide, the dearth of growth in the US and the euro zone, and the worldwide financial-market turmoil that is continuing to hurt prospects for the global economy. “We identified the challenges of the future in good time,” said Nikolaus von Bomhard, the chief executive of Munich Re in a statement. He said the company was conservative in terms of its financial positions and stood to profit despite the market environment. Furthermore, the company is moving ahead with “profitable business initiatives,” such as expansion in segments such as primary insurance. Munich Re said its biggest natural catastrophes in the second quarter were the severe earthquake in the Chinese province of Sichuan, floods in the US Midwest, and a windstorm in Germany, for which ¤30 million to ¤40 million ($47 million to $57 million) was earmarked for each event. The company said the biggest man-made loss events in the second quarter were a Moscow fire and a blaze at Universal Studios in California, for which another ¤30 million to ¤35 million ($47 million to $54.3 million) apiece was set aside. Shares of Munich Re were up 1.7 percent to ¤112.26 ($173.86) in Frankfurt trading.
