Reinsurer giant warns of second quarter profit plunge.
Insurance stocks took a hit this week following Munich Re’s warning that second quarter profits would be sharply down, due to steep falls in share and bond prices.
The world’s second largest reinsurer said its 2008 profits would be below the previously envisaged range of €3bn-€3.4bn (£2.4bn-£2.7bn), but well above €2bn.
On the basis of provisional figures, it forecast consolidated profits of €600m for the second quarter of 2008, compared €1,158m for the same period last year.
The announcement came as fellow reinsurer Hanover Re said it too would struggle to meet its earnings targets if the current economic turmoil continued.
Insurance stocks fell between 6% and 8% on the news and were still seeing a downward trend as Insurance Times went to press on Tuesday. For example, Aviva stocks fell 8.57% over the course of the week to 466.75p; Catlin stocks fell 12.83% to 309.25p; and Highway stocks fell 13% to 48.5p.
Munich Re chief executive Jorg Schneider said: “We have always stated that our result forecasts are conditional on normal capital market fluctuations and claims burdens. Now a strong fall in share prices has occurred.
“As one of the most significant investors in our industry, we cannot escape the current capital market turmoil. But thanks to our balanced investment policy, we have succeeded in achieving an acceptable half year result in this difficult overall environment.
“In the second half of 2008, we will also achieve a substantial profit, even assuming that the capital markets remain difficult. Should the capital market situation show a considerable improvement our profit guidance would also increase again.”
Schneider added that the company still aimed to increase its earnings per share to €18 by 2010.
Munich Re’s half year results will be published on