Munich profits fall highlights global insurance problems

Munich Re recorded an almost 40 per cent drop in profits from £3.2bn in the first quarter of 2007 to £1.9bn in the same period this year, while the company's insurance business took a 50 per cent cut to £300m from £600m during the same period.

Jörg Schneider, chief finance officer, for Munich Re said he expected further losses, predicting overall end of year profits to be less than £1.6bn.

Andrew Cox, partner and head of risk and regulatory capital for Lane Clark & Peacock, said Solvency II requirements to shore up capital reserves against insurance risks could cause problems for companies losing profits.

He said: "This should highlight the need for regulators to focus attention on some of the largest and most interconnected insurance firms.

"Recent events, including the problems at US protection giant AIG, have taught us that no insurer is too big or too diversified to fail.

"Regulators across Europe will find it a challenge to prioritise their resources under the coming Solvency II regulatory regime.

"It is not inconceivable that a 'black swan' event could cause the failure of a major international reinsurer, and this could have a massive ripple effect."

Mr Schneider said: "The 2008 financial year is proving difficult on account of the financial crisis, but the Munich Re Group is acquitting itself well compared with its competitors thanks to its well-balanced investment portfolio.

"Even in these times of uncertainty, we are offering our shareholders reliability and an excellent dividend yield."