Munich Re reported a 47 percent decline in second-quarter net income compared to the same period in 2007, attributing those results primarily to write-downs on the company's equity portfolio.
The company reported a net income of EUR599 million ($923.4 million), compared to EUR1.1 billion ($1.7 billion) a year ago.
Investment results fell nearly 37 percent compared to the second quarter of 2007, dropping to EUR1.6 billion ($2.5 billion) from EUR2.5 billion ($3.9 billion). The quarter included EUR889 million ($1.4 billion) in write-downs, Munich Re said.
"In the first three months of the year, the negative development of the market had already led Munich Re to make write-downs in its equity portfolio totaling EUR1.3 billion ($2 billion). Following a slight recovery at the start of the second quarter, share prices dropped significantly again, requiring an additional EUR889 million ($1.4 billion) worth of write-downs in the second quarter of 2008," a company statement said.
For its reinsurance segment, Munich Re reported an operating result of EUR1.7 billion ($2.6 billion), compared to EUR1.4 billion ($2.2 billion) a year ago. The combined ratio rose to 95.4 from 94.9 in the second quarter of 2007.
Gross premiums written were EUR5.2 billion ($8 billion), up slightly from 2007.
The company cited a severe earthquake in the Chinese province of Sichuan, the floods in the U.S. Midwest and Windstorm Hilal over Germany as the largest natural catastrophe loss events for the quarter. A fire in a switching station in Moscow and a fire at Universal Studios in California accounted for the largest manmade disasters.
Munich Re said it has observed growing price competition in some markets and sectors. Munich Re board member Torsten Jeworrek said, "There is only one answer to increasing price pressure: active cycle management." He added, "If necessary, we will shed business."
With respect to its primary insurance segment, Munich Re reported the combined ratio climbed to 92.9 from 85.1 last year, while gross premiums written were EUR4.2 billion ($6.5 billion), up from EUR4.1 billion ($6.3 billion) a year ago.
The company said, "Following the first-quarter improvement in the combined ratio, natural hazard events such as Windstorm Hilal in Germany had a slightly negative influence on the combined ratio in the second quarter."
In releasing its second-quarter results, the company reiterated that it expects its profits to be well over EUR2 billion ($3.1 billion).
Standard & Poor's Rating Services subsequently announced that Munich Re's "double-A-minus" long-term counterparty credit and insurer financial strength ratings will remain unaffected. "We expect the group to return to steady earnings growth once capital markets stabilize, supported by strong underlying business fundamentals and its Changing Gear program," Standard & Poor's said.
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