MUNICH (Bloomberg) - Munich Re, the world’s biggest reinsurer, reported a smaller-than-estimated third-quarter profit after it set aside money for future tax payments.

Net income was 644 million euros ($955 million) for the three months ended Sept. 30, compared with a loss of 3 million euros a year earlier, Munich Re said in an e-mailed statement today. That missed the 715 million-euro median estimate of 15 analysts surveyed by Bloomberg. For the full year, the reinsurer expects between 2.2 billion euros and 2.5 billion euros in net income including minority interests.

“It won’t be easy to maintain current profit levels going forward,” Chief Financial Officer Joerg Schneider said in a conference call today. Operating profit rose to 1.21 billion euros in the quarter from 373 million euros a year ago. That exceeded the analyst estimate of 1.13 billion euros.

Investment income in the quarter more than tripled to 2.24 billion euros, beating the median analyst estimate. Earnings from investments were hurt last year by equity writedowns and losses related to the collapse of Lehman Brothers Holdings Inc. Schneider said investment returns will be “distinctly below” 4 percent in coming years “in a low-interest rate environment.”

‘Blurred a Bit’

“The solid operating results have been blurred a bit by the net income miss and the cautious outlook on investment results,” said Roland Pfaender, a Frankfurt-based analyst with Commerzbank AG who has an “add” rating on the shares. “Assuming another quarter of low major disaster claims, they should be able to meet the upper end of their profit guidance.”

Munich Re, led by Chief Executive Officer Nikolaus von Bomhard, 53, increased equity holdings to 2.1 percent of its investments after hedging at the end of September, from 1.7 percent at the end of 2008. That compares with 10.8 percent at the end of 2007. It’s “unlikely” equities will exceed 5 percent of investments going forward, Schneider said.

Munich Re declined 1.1 percent to 106.20 euros in Frankfurt trading today, valuing the company at 21 billion euros. The Munich-based reinsurer’s stock has lost 4.3 percent this year.

Zurich Financial Services AG, Switzerland’s biggest insurer, fell the most in almost six months in Swiss trading after third-quarter profit missed analysts’ expectations.

Munich Re’s losses caused by natural disasters in the third quarter amounted to almost 100 million euros, three-quarters of which was due to Windstorm Xystus in central Europe, it said.

Fewer Hurricanes

This year’s U.S. hurricane season, which lasts from June through November, has only seen one named system make landfall in the U.S., Tropical Storm Claudette. Last September, Hurricane Ike slammed into Texas, costing the industry about $20 billion, while Hurricane Gustav produced claims of about $4 billion, according to estimates by Swiss Reinsurance Co., the world’s second-biggest reinsurer.

Spending on claims and costs in property and casualty reinsurance improved to 93.4 percent of premium income in the quarter, from 101.2 percent a year earlier, Munich Re said. The company reiterated a target to reduce the measure, known as the combined ratio, to 97 percent this year. A combined ratio of less than 100 percent means underwriting is profitable.

The target to almost double profit at the primary insurance unit Ergo Versicherungsgruppe to more than 900 million euros between 2006 and 2012, is “out of reach,” Schneider said. He declined to give a new target. The unit posted a third-quarter profit of 89 million euros after 44 million euros a year ago.

Munich Re reiterated a target to at least maintain last year’s dividend of 5.50 euros per share, the same amount it paid for 2007, when it had a record profit of 3.9 billion euros.

Zurich-based Swiss Re yesterday reported an unexpected third-quarter profit of 334 million Swiss francs ($326 million) helped by investment gains and as fewer catastrophe claims boosted earnings at the property and casualty reinsurance unit. Hannover Re, Germany’s second-biggest reinsurer, is scheduled to report quarterly earnings tomorrow.