Munich Re, the world’s biggest reinsurer, took a 706 million-euro ($800 million) loss on derivatives contracts in the first quarter, caught off guard by a rally in stock markets.

The majority of the losses were incurred by hedging against gains in stocks, Chief Financial Officer Joerg Schneider said on a conference call on Thursday, when the company reported first- quarter earnings. He didn’t provide further details.

Munich Re is among European reinsurance firms seeking ways to boost returns from investments after yields on European bonds fell to record lows and prices of coverage decreased. The losses contributed to a 16 percent drop in first-quarter profit to 790 million euros, the company said.

Schneider said derivatives are an important part of investment management.

“We are feeling the effects of extremely low interest rates on our portfolio even more keenly, but we will not seek to make up for the shortfall by adopting a more risky investment strategy,” he said.

Investment income fell 8.6 percent to 1.82 billion euros. Losses from selling investments, excluding insurance-related items, more than tripled from a year earlier to 1.25 billion euros, Munich Re said. Gains increased 76 percent to 1.53 billion euros.

Munich Re rose 0.2 percent to 173.80 euros at 1:19 p.m. in Frankfurt. The shares have lagged the wider market this year, climbing 3.8 percent while the Bloomberg Europe 500 Insurance Index gained 8.6 percent. Five of 37 analysts say buy and 15 say sell, according to data compiled by Bloomberg.

Bunds Negative

Yields on German bunds may turn negative at some point, Chief Executive Officer Nikolaus von Bomhard, 58, said. A decline in the running yield on investments is “unavoidable,” Schneider said.

Bonds, loans and short-term fixed income represent 88 percent of Munich Re’s investments, it said.

Munich Re reiterated that it’s on track to meet a full-year profit target of 2.5 billion euros to 3 billion euros. That compared with 3.2 billion euros for last year.