Aug. 6 (Bloomberg) -- Munich Re, the world's biggest reinsurer, said profit declined 47 percent in the second quarter after it wrote down the value of investments.

Net income was 599 million euros ($929 million), down from 1.14 billion euros in the year-earlier period, the Munich-based company said today in a statement. Munich Re wrote down 889 million euros on its equity investments in the second quarter because ``the financial market crisis in Europe and the U.S. is persisting.''

Chief Executive Officer Nikolaus von Bomhard said July 25 that falling markets would force the company to mark down investment values and reduce its 2008 profit forecast to ``well above 2 billion euros'' from an earlier target of as much as 3.4 billion euros. That triggered Munich Re's biggest share drop in five years. Munich Re said today that its dividend would remain unchanged.

``The full-year profit goal of more than 2 billion euros would only be endangered if a second Katrina-like hurricane would hit the U.S. or if stock markets would fall much further,'' said Robert Mazzuoli, a Landesbank Baden-Wuerttemberg analyst who has a ``buy'' rating on Munich Re.

Munich Re rose 2.56 euros, or 2.3 percent, to 112.93 euros in Frankfurt, trimming this year's drop to 15 percent. The company has outperformed the 31-member Bloomberg Europe 500 Insurance Index, which has fallen 23 percent in the same period. Reinsurers assume parts of primary insurers' liabilities in exchange for a share of their premiums.

Today's numbers gave ``some relief that the insurance results are OK and that the profit warning was just a matter of investments,'' Bernd Mueller-Gerberding, an analyst at UniCredit in Munich who recommends holding the shares, wrote to clients today.

Swiss Re

Swiss Reinsurance Co., the world's second-largest reinsurer, said yesterday that second-quarter profit declined 53 percent after 362 million francs ($344 million) of writedowns related to credit- default swaps, adding to more than 2 billion francs in CDS losses announced by the Zurich-based company since November.

Munich Re, which also is the largest German reinsurer, said it plans to pay a dividend of at least 5.50 euros per share in 2009, the same as it paid to shareholders this year.

Munich Re's income from investments slumped 37 percent to 1.58 billion euros. The investment result was hurt by 591 million euros in the quarter, taking into account writedowns and gains for equities and equity-based derivatives, the reinsurer said.

``If equity markets do not recover, further writedowns will burden the second-half result,'' Stephan Kalb, an analyst at Sal. Oppenheim in Frankfurt, who recommends buying Munich Re shares, wrote ahead of the results. ``Risk capital is still at about 170 percent of the required level, according to our estimates.''

The total value of Munich Re's investments declined 5.6 percent to about 166 billion euros from the end of 2007, ``mainly due to currency translation effects, stock market trends and increases in interest rates,'' it said.

Subprime Markdowns

Markdowns on subprime-related investments were about 10 million euros in the quarter after 5 million euros in the first quarter. The remaining U.S. subprime mortgage investments are valued at about 240 million euros, or less than 0.2 percent of total investments, Munich Re said.

The company held 6.7 billion euros in structured credit products at the end of the quarter, 1.2 billion euros more than the beginning of the year, it said. About 3 billion euros of those investments were residential mortgages-backed securities issued by U.S. mortgage-finance companies Freddie Mac and Fannie Mae.

Operating profit fell 33 percent to 1.02 billion euros in the quarter while spending on claims and costs at Munich Re's property and casualty reinsurance unit rose to 95.4 cents for each euro of premium income from 94.9 cents a year earlier.

The company reiterated its forecast that the combined ratio will rise to 98 percent this year. A combined ratio below 100 percent means premium income exceeds claims and costs, or that underwriting is profitable.

Sticking to Target

Net earned premiums fell 1.8 percent to 8.7 billion euros. Gross premiums written rose 1.2 percent to 9.01 billion euros, of which Munich Re's primary insurance unit, which mostly consists of Dusseldorf-based Ergo Versicherungsgruppe, contributed 4.17 billion euros in the quarter.

Von Bomhard, 52, said last week he is sticking to his target to increase earnings per-share by an average of 10 percent until 2010 to at least 18 euros, helped by share buybacks.

Munich Re plans to repurchase 5 billion euros of its shares by 2010. The reinsurer has bought back 2 billion euros under that program and is halfway through buying back another 1 billion euros of stock by the next annual shareholders meeting in 2009.

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

Last Updated: August 6, 2008 12:00 EDT