Damage Claims Threaten Munich Re’s 2011 Profit Goal

March 10, 2011

Heavy damage claims from an earthquake, floods and a storm this year will put Munich Re’s full-year profit goal at risk if claims do not subside in the coming quarters.

The world’s biggest reinsurer said it hoped to keep net profit steady at around €2.4 billion ($3.322 billion) in 2011 but floods and a storm in Australia, along with a devastating earthquake in New Zealand in the first quarter, posed a major threat.

“This target will only remain achievable if random losses in the further course of the year remain below expectations,” Munich Re said in a statement.

Reinsurers often face their heaviest claims in the second half of the year, when hurricanes in the Atlantic are at their peak.

Reinsurer shares have sagged since the Feb. 22 earthquake in Christchurch, New Zealand, which killed at least 166 people and may prompt up to $12 billion in damage claims at insurers.

Munich Re said its preliminary estimate for its hit from the New Zealand quake was around A$1 billion (US$1 billion). It expected flooding in Brisbane to cost it A$350 million [US$351.7 million], while Cyclone Yasi, which also hit Australia, would cost it around A$135 million [US$135.5 million].

Munich Re shares have fallen 2.8 percent since the earthquake, while Swiss Re shares are down 4.5 percent, against a flat Stoxx Europe 600 insurance index.

Swiss Re announced on March 2 that it expects to face around $800 million in claims from the magnitude 6.3 quake, pushing the reinsurer over its 2011 budget for natural catastrophes.

Data from StarMine, which weights analysts’ forecasts according to their track record, show Munich Re trading at 8.9 times 12-month forward earnings, a discount to Swiss Re at a multiple of 9.8 but a premium to Hannover Re, which trades at a multiple of 7.9.

Munich Re confirmed on Thursday that net income for 2010 fell 5 percent to €2.4 billion The reinsurer had already reported key 2010 data on Feb. 3.

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