Munich Re Second-Quarter Net Income Beats Analyst Estimates as Taxes Fell

Munich Re, the world’s biggest reinsurer, reported a 3.8 percent increase in second-quarter profit, beating analyst estimates as the tax rate fell.

Net income for the period was 736 million euros ($1.05 billion), compared with 709 million euros the year earlier, the Munich-based reinsurer said in an e-mailed statement today. That beat the 660 million-euro average estimate of 14 analysts surveyed by Bloomberg. Income taxes fell 62 percent because of the loss that Munich Re reported in the first quarter.

Chief Executive Officer Nikolaus von Bomhard, 55, in March scrapped a share buyback and a 2.4 billion-euro profit target for the year after the earthquake and tsunami in Japan triggered the reinsurer’s first quarterly loss since 2003. While the first-quarter’s natural disasters cost Munich Re about 2.7 billion euros, or almost three times the amount set aside for a normal year, the company confirmed today that it still expects to post a profit in 2011.

“The lower tax rate helped them beat estimates on net income,” said Philipp Haessler, a Frankfurt-based analyst at Equinet Bank AG who recommends holding the shares. “Maintaining the profit target for now is no real surprise as that mostly depends on the outcome of the U.S. hurricane season anyway.”

Greek Writedown

Munich Re wrote down its Greek government debt holdings to market values as of June 30, weakening the second-quarter result by 125 million euros. Other financial firms including France’s BNP Paribas SA and Deutsche Bank AG wrote down Greek debt and are participating in a rescue plan that requires investors to take a loss of about 21 percent on holdings that mature by 2020.

Munich Re said its estimate for a pretax loss of 1.5 billion euros from the disaster in Japan would still be “subject to considerable uncertainties, mainly due to the extent of the devastation and the related difficulties in claims settlement.”

The reinsurer increased its estimate for the earthquake that hit Christchurch, New Zealand, in February by 261 million euros to about 1 billion euros. Losses for the weather-related events in Australia are now expected to be 110 million euros lower than previously reserved, it added.

Tornados

The series of tornadoes that ripped through the U.S. South and Midwest in April and May led to losses of “just over” 200 million euros in the quarter, the reinsurer said. Spending on claims and costs as a percentage of net premiums at Munich Re’s property and casualty reinsurance unit improved to 99.6 percent in the quarter, compared with a combined ratio of 103.8 percent a year ago.

Reinsurers and the primary carriers whom they help carry risks for clients, incurred record losses of about $70 billion from the natural disasters in the first half of the year, according to estimates by Guy Carpenter & Co., the reinsurance broker of Marsh & McLennan Cos. Of that, tornadoes and severe weather in the U.S. cost insurers more than $14 billion, the broker said.

“The claims burdens in the first quarter already had an impact on the negotiations for treaty renewals at 1 July,” said management board member Torsten Jeworrek, who heads Munich Re’s reinsurance business, in the statement. “These effects should also have an appreciable influence on the renewals at 1 January 2012.”

Reinsurers’ catastrophe claims usually increase in the second half of the year with the hurricane season in the North Atlantic and typhoons in the northwest Pacific. Researchers at Colorado State University forecast a “well-above-average” Atlantic June-through-November hurricane season. No major hurricane has hit the U.S. coast so far this year.

Munich Re shares, which have a market value of about 17.7 billion euros, had declined 14 percent this year before today, compared with a 7.9 percent drop in the Bloomberg Europe 500 Insurance Index.

The stock gained 1.91 euros, or 2 percent, to 99.72 euros as of 9:11 a.m. in Frankfurt.

To contact the reporter on this story: Oliver Suess in Munich at osuess@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Edward Evans at eevans3@bloomberg.net