Munich Re, the world’s biggest reinsurer, reported second-quarter profit that missed analyst estimates, hurt by claims linked to a snowstorm in Japan. The shares dropped the most in three months.

Net income advanced 45 percent to 765 million euros ($1 billion) from the year-earlier period, missing the 798 million euro average estimate of 11 analysts surveyed by Bloomberg. Major claims in the quarter rose to 617 million euros from 605 million euros, the Munich-based company said in a statement.

The Japanese snowstorm in February was the costliest natural disaster for the reinsurer as customers made their claims in the second quarter. The storm cost an estimated 180 million euros, while claims linked to man-made disasters totalled 326 million euros in the three months through the end of June, including a fire “in the low three-digit million euro range,” Munich Re said, without giving details.

“We are surprised” that the Japan claim “was not reflected in the first-quarter results given the magnitude of the event,” Tom Carstairs, an analyst at Berenberg with a buy rating on the stock, wrote in a note to clients.

The shares were down 2.1 percent at 149.15 euros at 12:08 p.m. in Frankfurt trading, valuing the company at about 25.8 billion euros. The stock is down 6.8 percent this year, compared with a 1.2 percent drop for the Bloomberg Europe 500 Insurance Index.

Also, Munich Re said that its property/casualty reinsurance combined ratio hit 101.4 of net earned premiums for the second quarter, versus 99.3 last year. Munich Re noted that while first-quarter highlights included “low costs for major losses,” its second quarter involved “a higher random incidence of man-made major losses.

For the quarter, gross premiums written overall declined 7.4 percent to 11.9 billion euros ($15.9 billion) versus 12.8 billion euros ($17.1 billion) over the same period last year. Munich Re said that if exchange rates had remained the same, premium volume would have dipped 4.1 percent year-over-year.

Target Confirmed

The Japan snowstorm caused losses of about $2.5 billion for the industry, and Munich Re’s portion was in line with its market share, Torsten Jeworrek, who heads Munich Re’s reinsurance business, said at a press conference in Munich today.

The reinsurer also raised its estimate for claims linked to the Costa Concordia cruise ship, which sank in 2012, to 120 million euros from 100 million euros. The estimate should now stabilize because the ship has been moved to Genoa, Italy, for salvage, Jeworrek added.

Munich Re, led by Chief Executive Officer Nikolaus von Bomhard, confirmed a full-year profit target of 3 billion euros, down from 3.3 billion euros reported for 2013. The Munich-based reinsurer is increasing dividends and buying back shares to appease investors, including Warren Buffett. His Berkshire Hathaway Inc. is Munich Re’s biggest shareholder, with an 11.6 percent stake.

Investment income increased 65 percent to 2.57 billion euros, helped by gains of 437 million euros from selling equity investments and market value gains for interest rate hedges at the Ergo Versicherungsgruppe primary insurance unit.

Ergo Unit

“Our strategy remains geared to making profits through our underwriting business, not through risky investments,” von Bomhard said in the statement.

Profit at Munich Re’s primary insurance unit, which mostly consists of Dusseldorf, Germany-based Ergo, declined 30 percent to 104 million euros in the quarter on lower earnings at the non-life unit. Ergo, led by CEO Torsten Oletzky, is targeting a full-year profit of 400 million euros to 500 million euros.

Reinsurers provide backup coverage to primary insurers such as Allianz SE and Axa SA. They are under pressure to maintain earnings as low interest rates weigh on investment income and prices for their coverage fall. While lower-than-average catastrophe losses in the first half helped reduce costs from claims, they also limit reinsurers’ pricing power.

Natural catastrophes including blizzards in the U.S. and floods and storms in Europe caused insured losses of $17 billion in the first half of the year compared with a 10-year average of $25 billion, according to data compiled by Munich Re.

Reinsurance rates declined in the main renewals of annual contracts in January, April and July due to the absence of major catastrophes and an oversupply of capital available for coverage, according to reinsurance broker Guy Carpenter. Rates have declined in seven of the last 10 years, according to the Guy Carpenter World Property Catastrophe Rate Online Index.

Swiss Re Ltd., the world’s second-biggest reinsurer, slumped in Zurich trading yesterday after reporting second-quarter profit that missed analyst estimates amid a decline in earnings from life and health insurance. Hannover Re also declined yesterday after reporting lower-than-expected earnings.

(*This Bloomberg story includes additional information added by Carrier Management in the 6th and 7th paragraphs on Munich Re’s property/casualty reinsurance combined ratio, plus gross premiums written for the second quarter.)

Topics Profit Loss Claims Reinsurance Japan