Munich Re today issued a “more cautious” profit forecast for2008, saying its results will be lower than “previouslyenvisioned.”

The firm said it now expects a consolidated profit this year ofabout EUR600 million ($942 million), compared to EUR1.15 billion($1.80 billion) for the same period last year.

The reinsurer said the estimate is based upon “very provisional”key figures.

Munich Re said in a statement that because of capital marketturmoil–steep falls in share and bond prices–it expects its profitto be below an expected range of EUR3 billion to EUR3.4 billion($4.71 billion to $5.34 billion) to about EUR2 billion ($3.14billion).

Munich Re said its longer-term goals would remain unaffected bythe reassessment. Chief Financial Officer Jorg Schneider said ofthe revised profit guidance: “We have always stated that our resultforecasts are conditional on normal capital-market fluctuations andclaims burdens. Now a strong fall in share prices hasoccurred.”

He continued, “As one of the most significant investors in ourindustry, we cannot escape the current capital market turmoil Butthanks to our balanced investment policy, we have succeeded inachieving quite an acceptable half-year result in this difficultoverall environment.”

He said that in the second half of 2008 the company will “alsoachieve a substantial profit, even assuming that the capitalmarkets remain difficult. Should the capital market situation showa considerable improvement, our profit guidance would also increaseagain.”

Munich Re said that since the beginning of 2008, share priceshave fallen substantially, with the European stock indexesEUROSTOXX50 and the DAX showing changes of between negative 20percent and negative 24 percent, up to June 30 of this year.

Fixed interest securities and currency parities also have beenexceptionally volatile. As an investor with assets of about EUR166billion ($260 billion), Munich Re Group said it has naturally beenhit by these developments.

The group added, however, that its economic exposures toequities amounts to just under 7 percent of its overall assets.Nevertheless, it said, substantial write-downs have been made forthis equity portfolio, adding that net gains on disposals haveremained well below the previous year's figure.

Write-downs of fixed interest securities were only small inscope, Munich Re said, with the group benefiting from its policy of“restraint with regard to higher risk investments in thiscategory.”

If price levels stay the same, the company said, furtherwrite-downs of equities would be necessary of the rest of theyear.

Mr. Schneider stressed that the medium term outlook was positiveand that the share buy-back program will be continued.