Nov. 7 (Bloomberg) -- Munich Re, the world's biggest reinsurer, cut its profit target for a second time this year after third-quarter earnings slumped on investment writedowns, and said it dividend and earnings-per-share target are unchanged.

Net income fell to 7 million euros ($9 million) from 1.2 billion euros a year earlier, the Munich-based company said in a statement today. The result brought net income for the first nine month to 1.4 billion euros. Munich Re will continue to buy back shares as planned and confirmed a target to increase earnings per share by an average of 10 percent until 2010 to at least 18 euros.

``Munich Re's capital base remains solid,'' Chief Financial Officer Joerg Schneider said in the statement. Still, stock market losses mean ``annual profit will probably not reach 2 billion euros.''

The company reiterated a statement from Aug. 6 that it plans to pay a dividend of at least 5.50 euros per share this year, matching the payout for 2007. In contrast, Swiss Re, the second- largest reinsurer, suspended its share-buyback program this week after posting its first loss in almost six years, partly because of losses on credit-default swaps. Hannover Re, Germany's second- biggest reinsurer, said it won't pay a 2008 dividend as it's heading for its first full-year loss.

Still Buying Shares

Munich Re climbed 8 percent to 104.10 euros in Frankfurt trading, giving the company a market value of 21.5 billion euros.

``Munich Re's capital position has barely changed during the quarter, which is good news as it allows them to benefit from improving reinsurance markets next year,'' said Thomas Noack, an analyst at WestLB Equity Markets in Dusseldorf who has an ``add'' rating on the shares.

The company first reduced its forecast on July 25 to ``well above 2 billion euros'' from an initial goal of as much as 3.4 billion euros. Reinsurers are writing down equity investments after global stock markets slumped 42 percent this year. The investment losses add to claims from hurricanes Ike and Gustav, which may cost the industry $18 billion, according to Swiss Reinsurance Co.

The reinsurer wrote down 1.79 billion euros on equity investments in the third quarter after 2.22 billion euros in markdowns in the first half. The revaluation of the investments in fixed-interest securities led to writedowns of 101 million euros in the first nine months, it said.

Equities represented 4.6 percent of the company's total investments after hedging as of Sept. 30. That compares with about 11 percent at the end of last year. The equity ratio ``had sunk even further'' by the end of October, Munich Re said.

Lehman Writedown

Munich Re wrote down about 115 million euros on business relations with bankrupt Lehman Brothers Holdings Inc., which involve various capital market transactions, it said. Problems at American International Group Inc. and Washington Mutual Inc. ``had no notable impact on Munich Re's results,'' it said.

Hurricane Ike cost Munich Re about 300 million euros before taxes, and hurricane Gustav about 90 million euros.

Spending on claims and costs at Munich Re's property and casualty reinsurance unit rose to 101.3 cents for each euro of premium income, compared with 97.1 cents a year earlier.

The company said its forecast for a combined ratio of 98 percent this year ``can only be achieved if major losses remain significantly below expectations in the fourth quarter.'' A combined ratio below 100 percent means premium income exceeds claims and costs, or that underwriting is profitable.

Munich Re has dropped 28 percent this year in Frankfurt trading, valuing the reinsurer at about 19.9 billion euros. The company has outperformed the 31-member Bloomberg Europe 500 Insurance Index, which has dropped 44 percent.

Reinsurers assume parts of primary insurers' liabilities in exchange for a share of their premiums.

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

Last Updated: November 7, 2008 03:37 EST