Allianz SE (AZ), Europe's largest insurer by market capitalization, expects to break even on a net level in the first quarter, Chief Executive Michael Diekmann said Wednesday.

The net break-even compares with a EUR1.15 billion net profit in the first quarter of 2008.

Write-downs on financial investments and the announced EUR400 million hit related to the sale of Dresdner Bank AG are weighing on the first-quarter result, Diekmann told shareholders here.

Allianz sold Dresdner to Commerzbank AG (CBK.XE) for around EUR5.1 billion in a deal that closed in mid-January. Allianz has said the total negative effect of the sale amounted to EUR6.8 billion, of which EUR6.4 billion was booked in 2008 and the remaining EUR400 million in the first quarter.

The bank had total crisis-related markdowns of EUR6.7 billion since mid-2007, the bulk of which was related to hits it took from asset-backed securities, conduits, leveraged buyout commitments, credit enhancements, monoline insurers that insure bonds, and a Dresdner K2 structured investment vehicle, which was a pool of risky assets the bank had to fund when the credit markets seized up.

Earlier Wednesday, Allianz reported a 41% decline in operating profit in the first quarter, which Diekmann attributed to the weaker global economy, write-downs on financial investments, and damage claims caused by winter storms in France and Spain, and forest fires in Australia.

Meanwhile, all business segments "made a positive contribution to the operating result," Diekmann said. After the sale of Dresdner, Allianz has insurance and asset management operations and a small banking business.

First-quarter operating profit is expected to fall to around EUR1.3 billion from EUR2.2 billion a year earlier, on total revenue of EUR27.7 billion, up 2.6% from a year earlier, the company said. The year-ago figures have been restated to account for the Dresdner Bank sale in discontinued operations.

The insurer's solvency ratio - a measure of its ability to meet long-term obligations - fell to 158% at the end of March from 161% at the end of December but was still substantially above the 100% regulatory requirements.

Merck Finck analyst Konrad Becker said if the net break-even were to mean "zero net profit," that would be below his expectations.

The net figure likely reflects a higher-than-forecast hit the property/casualty insurance business took from damage claims and the Dresdner burden, said the analyst, who rates the shares at hold.

The decline in operating profit will likely be due to a substantially weaker capital investment result and asset write-downs, but could also signal that that problems at the U.S. operations have increased.

Diekmann called the U.S. life insurance business "a particular challenge," reiterating that Allianz's business there will again require "tough cost-cutting measures" and "massive product changes this year."

Becker called positive that the solvency ratio was reached despite crisis-related burdens from investments, and as signaling the insurer won't need a capital increase, which CEO Diekmann confirmed.

"Any dilution of your shareholding by a capital increase as a result of regulatory conditions, or even intervention by the state, are therefore not on our agenda," Diekmann told shareholders.

Allianz will report all first-quarter earnings May 13.

Company Web site: www.allianz.com

-By Ulrike Dauer, Dow Jones Newswires; +49 69 29725 500; ulrike.dauer@dowjones.com