Low damage claims and rising premiums helped to shield earnings at German reinsurers Munich Re and Hannover Re in the first quarter, as the sector battles to shore up profits amid record low interest rates.

The two reinsurers said on Tuesday payouts for natural and man-made disasters, such as flooding in Australia and the failure of a satellite, more than halved in the first three months of the year from an already low level a year earlier.

That helped Munich Re, the world’s biggest reinsurer, to beat forecasts with a one fourth rise in quarterly net profit to 972 million euros ($1.3 billion), and No. 3 reinsurer Hannover Re to post a smaller-than-expected fall in profit from an unusually strong prior-year quarter.

However, analysts said the industry faced a battle to make up for falling income from its vast holdings of relatively safe government bonds, where yields have slumped because of rock-bottom central bank interest rates.

The European Central Bank (ECB) cut borrowing costs to a record low last week and held out the possibility of further easing to support the recession-hit euro zone economy, drawing fire from insurers worried about a yawning future pensions gap.

“The issue is how you can price your business better to continue to make an attractive margin with the investment returns you are likely to earn going forward,” said Ben Cohen, an analyst at Canaccord Genuity in London.

Munich Re Chief Financial Officer Joerg Schneider said that, alongside the lower damage claims, the group’s operating earnings were robust and he was optimistic it could reach its full-year net profit target of earning close to 3 billion euros.

However, first-quarter investment income fell 11 percent from the same period the previous year, underscoring the pressure from low interest rates, with Schneider saying the ECB’s stance on monetary policy was a worry.

“For us it is very problematic,” he said on a conference call with journalists.

Net investment income was hit at world No. 3 reinsurer Hannover Re as well, though this also reflected the absence of one-off factors seen in the year-earlier quarter.

“Investments developed satisfactorily despite the protracted period of low interest rates,” Hannover Re said.

Global No. 2 reinsurer Swiss Re last week reported that rising premiums and low damage claims helped boost quarterly net profit by more than one fifth.

PREMIUM GAINS

Reinsurers’ earnings are often volatile because their business is to help insurance companies shoulder the burden of big, unpredictable damage claims, like earthquakes or hurricanes, in exchange for part of the premium.

Sector-wide premiums – essentially revenues – rose in the first quarter, helped by rising prices in some markets, with insurers also getting a boost from asset management amid rising stock markets.

Europe’s biggest insurer, Allianz, on Tuesday said total revenue rose by nearly 7 percent to about 32 billion euros, after No. 2 player Axa reported late on Monday a 3 percent revenue rise to 29 billion euros.

“The improvement in our results comes from all of our business segments, so it is broad-based,” Allianz Chief Executive Michael Diekmann said in a statement ahead of the detailed earnings release due on May 15.

Allianz posted a 20 percent rise in first-quarter operating profit to 2.8 billion euros and said it was on track to meet its full-year target of 9.2 billion euros, plus or minus 500 million. Quarterly net profit rose by nearly one fourth.

Separately, Bermuda-based specialist insurer Hiscox Ltd. reported a 12 percent rise in first-quarter premiums, mainly driven by its London-based unit’s property and speciality businesses.

Hannover Re said its premiums rose by 7 percent from January to March, while net profit fell by less than expected to 221 million euros from 261 million in the year-earlier quarter.

Hannover Re Chief Financial Officer Roland Vogel told a conference call with journalists that the quarterly result formed a good basis for reaching the reinsurer’s full-year target of net profit in the order of 800 million euros.

The reinsurer had seen no large damage claims so far in the second quarter, he added.