MUNICH (Bloomberg) — Hannover Re, the world’s fourth-biggest reinsurer, said first-quarter profit rose 17 percent as higher investment income and a lower tax rate helped cushion claims from winter storm Kyrill.Net income rose to 123.5 million euros ($168 million), or 1.02 euros a share, compared with 106 million euros, or 88 cents, a year earlier, the Hanover, Germany-based company said in a statement yesterday. That beat the 109 million-euro median estimate of 12 analysts. Operating profit dropped 17 percent.

Hannover Re had damage claims of “just under” 160 million euros before tax from winter storm Kyrill, which battered Europe with hurricane-force winds in January, the company said yesterday. Chief executive officer Wilhelm Zeller said full-year profit will exceed last year’s level of 514.4 million euros.

“It’s the nature of the reinsurance business that a full-year target will be hardly believable before the end of the hurricane season in November,” said Robert Mazzuoli, an analyst at Landesbank Baden-Wuerttemberg in Stuttgart who has a “hold” rating on the shares. “Earnings have been mostly driven by extraordinary effects, which are not sustainable.”

The stock dropped 52 cents, or 1.4 percent, to 36.98 euros in Frankfurt. Hannover Re has gained 5.4 percent since the start of the year, valuing the company at 4.5 billion euros. The 29-member Bloomberg Europe 500 Insurance Index rose 5.2 percent.

Earnings before interest and tax fell to 154 million euros from 186 million. The decline “can be attributed principally to the impact of winter storm Kyrill”, the reinsurer said.

“Kyrill should have led to a loss at Hannover Re’s German unit, which should have resulted in notable tax refund in a high tax-rate country like Germany,” Mazzuoli said.

Gross written premiums for the full year are “more likely” to fall by ten percent, Zeller told shareholders at their annual meeting in Hanover yesterday. Hannover Re’s forecast is for a decline in premiums of between five and ten percent.

The drop stems mainly from the sale of the reinsurer’s primary insurance business, Praetorian Financial Group Inc., to Australian insurer QBE Insurance Group Ltd., which the company expects to complete in the second quarter.

Hannover Re increased its stake in E+S Rueck, which has sole responsibility for the company’s German business, by ten percentage points to 65.8 percent on April 1. The stake will be reduced as planned by two percentage points at the end of the second quarter.

“The reallocation of the risk capital released by the sale of Praetorian will open up new avenues for boosting profitability,” CEO Zeller said in the statement.

A share buyback programme is currently “not an issue” at Hannover Re, Chief Financial Officer Elke Koenig said in an interview yesterday.

“The market is attractive enough to invest our capital to grow our business. Hannover Re aims to expand its US catastrophe reinsurance business and its life and health reinsurance business, she added.

Net investment income rose 6.3 percent to 255 million euros in the quarter, the company said today.

Zeller reiterated an earlier target for a return on equity of at least 15 percent for 2007. The measure of profitability was 16.6 percent in the first three months of the year. Gross written premiums declined 9.4 percent to 2.4 billion euros in the quarter because of the sale of Praetorian Financial.

Reinsurers, which help primary insurers such as Allianz SE and Axa SA shoulder risks for clients, last year had their smallest losses from natural disasters since 2000, according to Munich Re estimates.

Net premium income in property and casualty reinsurance, Hannover Re’s biggest division, fell 14 percent to 1.09 billion euros. Net income rose 3.8 percent to 102 million euros.

Spending on claims and other costs in property and casualty reinsurance rose to 105.2 cents of each euro in premiums collected. That missed the analysts’ median estimate of 103.5 percent. The measure, which is also called combined ratio, stood at 98.5 percent a year ago.