Munich Re Posts 52% Drop in Fourt-Quarter Profit

Reinsurer Munich Re on Wednesday said its fourth-quarter profit dropped by 52% because of a dip in its net investment income.

The Munich-based reinsurer, the world's second-largest after Swiss Re, earned 641 million euros ($848.04 million) in the quarter compared with 1.34 billion euros a year ago and above the 627 million euros ($829.52 million) that analysts polled by Dow Jones Newswire had predicted.

Despite a 400 million euros tax gain and lower-than-expected disaster claims, the company was not able to match the previous year's figures, which had been helped by 1.15 billion euros it made by swapping its stake in HVB Group for shares of UniCredit, the Italian bank that acquired HVB.

Gross premiums fell 2% to 9.36 billion euros ($12.38 billion) from 9.57 billion euros a year earlier. Analysts had predicted 9.43 billion euros ($12.48 billion).

The company's investment income in the quarter fell to 1.88 billion euros from 2.77 billion euros a year earlier, a dip that led to the drag on its overall net profit.

For the year, the company earned 3.44 billion euros ($4.55 billion) compared with 2.68 billion euros in 2005. Gross premiums slipped slightly to 37.44 billion euros ($49.53 billion) from 38.20 billion euros a year earlier.

Investment income also slipped for the year to 8.88 billion euros ($11.75 billion) from 10.82 billion euros in 2005.

The company's non-life reinsurance combined ratio, a key measure of profitability, improved to 92.1% from 118.8%. A lower ratio means a business is doing better.

Operating profit, which most analysts and investors use to measure performance, rose to 5.49 billion euros ($7.26 billion) in 2006 from 4.14 billion euros in 2005.

Munich Re was overtaken by Swiss Re as the world's biggest reinsurer when the latter completed its takeover of General Electricreinsurance operations last year.

Reinsurance companies sell backup coverage to other insurers, spreading risk so the system can handle huge losses from major disasters.