Munich Re, Hannover Re Warn on Lower Earnings

July 25, 2008

German reinsurer Munich Re issued a profit warning on Friday, saying turmoil in global markets would hurt its second-quarter earnings and result in a lower than forecast profit for the year as a whole.

“Against the background of steep falls in share and bond prices, Munich Re expects its profit for 2008 to be below the previously envisaged range of €3.0-3.4 billion ($4.7-5.3 billion), but still well above €2 billion [$3.16 billion],” the world’s second-biggest reinsurer said in a statement.

“The main reason for this is the turmoil on the capital markets, which has led to an appreciable reduction in the group’s investment result in the first half of 2008,” it added.

Munich Re’s shares plunged on the news and were 12.2 percent lower at 0927 GMT, leading decliners on the German DAX index of blue chips and weighing on the DJ Stoxx index of European insurers.

Smaller rival Hannover Re also sounded a cautious note on full-year earnings following Munich Re’s warning.

“If capital markets do not calm down, it will be difficult to reach our targets,” a spokesman said.

Its shares fell 18.4 percent.

Hannover Re so far has targeted earnings per share of €5.00 [$7.90) and a return on capital of over 15 percent. “The forecast was based on the assumption that capital markets will calm down. This has not happened,” the spokesman added.

Allianz, Europe’s largest insurer, declined to comment ahead of its second-quarter earnings statement scheduled for Aug. 7.

Major stock markets have fallen sharply this year following the U.S. subprime crisis, and volatility in both fixed-income and currency markets has risen.

Insurers are major holders of shares and worries over the impact of sliding markets has hit their own share prices as well.

“As an investor with assets of around €166 billion [$262 billion], the Munich Re group has naturally been hit by these developments,” the company said.

Munich Re said its longer-term goals were unaffected by Friday’s profit warning.

“This also applies to the medium-term target to increase earnings per share to more than €18.00 [28.40]s by 2010,” it said.

(Reporting by Knut Engelmann and Arno Schuetze; Editing by Paul Bolding)

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