(Bloomberg) — Munich Re, the world's biggest reinsurer, reportedsecond-quarter profit that missed analyst estimates, hurt by claimslinked to a snowstorm in Japan. The shares dropped the most inthree months.

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

The Japanese snowstorm in February was the costliest naturaldisaster for the reinsurer as customers made their claims in thesecond quarter. The storm cost an estimated 180 million euros,while claims linked to man-made disasters totalled 326 millioneuros 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 inthe first-quarter results given the magnitude of the event,” TomCarstairs, an analyst at Berenberg with a buy rating on the stock,wrote in a note to clients.

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

Target confirmed

The Japan snow storm caused losses of about $2.5 billion for theindustry, and Munich Re's portion was in line with its marketshare, Torsten Jeworrek, who heads Munich Re's reinsurancebusiness, said at a press conference in Munich today.

The reinsurer also raised its estimate for claims linked to theCosta Concordia cruise ship, which sank in 2012, to 120 millioneuros from 100 million euros. The estimate should now stabilizebecause 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 from3.3 billion euros reported for 2013. The Munich-based reinsurer isincreasing dividends and buying back shares to appease investors,including Warren Buffett. His Berkshire Hathaway Inc. is MunichRe's biggest shareholder with an 11.6% stake.

Investment income increased 65% to 2.57 billion euros, helped bygains of 437 million euros from selling equity investments andmarket value gains for interest rate hedges at the ErgoVersicherungsgruppe primary insurance unit.

Ergo unit

“Our strategy remains geared to making profits through ourunderwriting business, not through risky investments,” von Bomhardsaid in the statement.

Profit at Munich Re's primary insurance unit, which mostlyconsists of Dusseldorf, Germany-based Ergo, declined 30 percent to104 million euros in the quarter on lower earnings at the non-lifeunit. Ergo, led by CEO Torsten Oletzky, is targeting a full-yearprofit of 400 million euros to 500 million euros.

Reinsurers provide backup coverage to primary insurers such asAllianz SE and Axa SA. They are under pressure to maintain earningsas low interest rates weigh on investment income and prices fortheir coverage fall. While lower-than-average catastrophe losses inthe first half helped reduce costs from claims, they also limitreinsurers' pricing power.

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

Reinsurance rates declined in the main renewals of annualcontracts in January, April and July due to the absence of majorcatastrophes and an oversupply of capital available for coverage,according to reinsurance broker Guy Carpenter. Rates have declinedin seven of the last 10 years, according to the Guy Carpenter WorldProperty Catastrophe Rate Online Index.

Swiss Re Ltd., the world's second-biggest reinsurer, slumped inZurich trading yesterday after reporting second- quarter profitthat missed analyst estimates, amid a decline in earnings from lifeand health insurance. Hannover Re also declined yesterday afterreporting lower-than-expected earnings.

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.