The reinsurer said it was allowing for a slump in the value of its investments - a large proportion of which are in shares - of 2.3bn euros ($2.7bn; �1.7bn) in the three months from January to March.

That pushed it to a 238m euro ($278m; �171m) loss, rather worse than the expected figure of some 180m euros and a sharp downturn from the 4.5bn euro profit booked in the same period of 2002 thanks to heavy asset sales.

But the company insisted that after the rough ride the insurance market has suffered over the past two years - including the after-effects of 11 September - its underlying business was improving.

Operating profit before writedowns and one-off costs was 123m euros but the firm refused to give a forecast for its full year performance due to the "uncertainty" of capital markets.

Slumping stocks

Reinsurers are the last port of call in the insurance business, underwriting the risks assumed by insurance companies on behalf of their clients.

The attacks on the US which took place on 11 September 2001 triggered massive insurance claims, and Munich Re's exposure ran into the billions of euros.

Now it, and its peers, have mostly come out from underneath that burden - but a reinsurer needs a healthy capital cushion to ride out the bad times, and Munich Re's heavily equity-biased investment portfolio has left it exposed to the severe downturn in stock markets worldwide.

Another writedown - albeit a less severe one - is possible if markets do not pick up, said Chief Financial Officer Joerg Schneider.