Oct. 21 (Bloomberg) -- Hannover Re, Germany's second-biggest reinsurer, abandoned its 2008 profit target after losing money in the first nine months of the year on declining stock investments and above-average catastrophe claims.

Hannover Re, suspended earlier today, resumed trading with a 14 percent decline after the reinsurer said it had a net loss of 140 million euros ($185 million) for the nine months ended Sept. 30. A full-year profit forecast for return on equity of more than 15 percent is ``no longer attainable.'' the Hanover, Germany-based company said in a statement.

The company, led by Chief Executive Officer Wilhelm Zeller, booked writedowns and unrealized losses of about 466 million euros in the first nine months, with about 360 million euros relating to stocks. Munich Re, the world's biggest reinsurer, cut its full- year profit forecast on July 25 and reported a 47 percent decline in second-quarter profit on investments writedowns. While Hannover Re ``significantly'' cut stock holdings in October, ``further charges will have to be taken,'' it said today.

``The size of the writedowns is shocking,'' said Robert Mazzuoli, an analyst at Landesbank Baden-Wuerttemberg in Stuttgart, who has a ``hold'' rating on the stock. ``Hannover Re miscalculated its investments and lowered its stock exposure too late.''

Hannover Re, which fell as much as 3.15 euros, traded down 8.5 percent at 20.29 euros at noon in Frankfurt, valuing the company at 2.4 billion euros.

Stock Holdings

Stocks made up 8 percent of total investments at the end of September, Hannover Re said. The 2008 profit target was contingent on catastrophe losses remaining within its annual budget of 10 percent of net premiums in non-life reinsurance and capital markets return to normal.

European stock markets, as measured by the Dow Jones Euro Stoxx 50 Index, fell 9.4 percent in the third quarter and 31 percent in the first nine months. The German benchmark DAX Index lost 27 percent through the end of September.

Claims from natural catastrophes were ``higher than anticipated,'' Hannover Re said. Hurricanes Gustav and Ike will cost the company about 250 million euros, bringing net catastrophe losses for the first nine months to about 14 percent of net premiums in non-life reinsurance, Hannover Re said.

``It's a surprise that they underestimated the catastrophe losses,'' said Christoph Schmidt, an analyst in Frankfurt with N.M. Fleischhacker AG. ``Hopefully that is the bottom, as the outlook sounds somewhat optimistic for next year.''

`Cautiously Optimistic'

Hannover Re said it is ``cautiously optimistic'' about the reinsurance markets next year as ``the capital depletion triggered by the financial market crisis'' will lead to a ``substantially higher'' reinsurance rates in a number of segments, it said. Reinsurers help primary insurers such as Allianz SE shoulder risks for clients.

Hannover Re plans to release final figures for the first nine months as well as a full-year outlook for 2008 on Nov. 5.

Munich Re ``expects further writedowns in the third quarter,'' spokeswoman Johanna Weber said in a telephone interview today. She declined to comment on profit outlook.

The Munich-based reinsurer, scheduled to report third-quarter figures on Nov. 7, said July 25 that stock-investment writedowns forced it to reduce its 2008 profit forecast to ``well above'' 2 billion euros from an earlier target of as much as 3.4 billion euros.

Allianz spokesman Michael Matern said the Munich-based insurer plans to report third-quarter figures on Nov. 10.

To contact the reporter on this story: Oliver Suess in Munich at osuess@bloomberg.net

Last Updated: October 21, 2008 06:24 EDT