Allianz SE (AZ), Europe's largest primary insurer by market capitalization, Wednesday reported a substantial decline in first-quarter net profit, on crisis-triggered write-downs on financial investments, a charge related to the sale of Dresdner Bank and higher claims costs.

The company gave no concrete earnings target for 2009, saying that the environment for financial services companies will remain "challenging" and that it can't rule out "further impairments, or indeed credit defaults on corporate bonds," which amount to about EUR50 billion, excluding banks, in its bond portfolio. Investment margins in its life-health portfolio will remain vulnerable to weaker financial markets.

It said, however, that the group's "underlying fundamentals in our operations are healthy" and that it is "able to withstand a prolonged difficult market environment." Its solvency ratio - a measure of its ability to meet long-term obligations - fell to 159% at the end of March from 161% at the end of December but was still substantially above the 100% regulatory requirements. It also said it accrued a EUR200 million dividend equivalent in the first quarter.

First-quarter net profit fell 98% to EUR29 million from EUR1.15 billion in the year-earlier quarter. Net profit from continuing operations, which excludes the negative contribution of EUR395 million still associated with the sale of Dresdner Bank, fell 69% to EUR424 million from EUR1.38 billion.

Chief Executive Michael Diekmann, had at the annual general meeting last month prepared markets for a break-even figure at the net level.

Total revenue rose 2.8% to EUR27.7 billion from EUR27 billion a year earlier, in line with the preliminary figure of EUR27.7 billion provided by the company at the AGM.

Operating profit was down 36% to EUR1.42 billion from EUR2.21 billion, but above Allianz's announcements at the AGM, when it said it expected a decline in operating profit to around EUR1.3 billion.

The figure was pressured mainly by write-downs on investments in the company's life-health insurance portfolio and higher costs for damage claims that hurt the underwriting result in property and casualty insurance.

All three business segments contributed positive, though lower, operating profit, with the insurance segments the hardest hit. After the sale of Dresdner, Allianz has insurance and asset management operations and a small banking business.

Diekmann had attributed the lower operating profit to the weaker global economy, write-downs on financial investments, and damage claims caused by winter storms in France and Spain, as well as forest fires in Australia.

In the quarter, Allianz realized net losses and impairments on investments of EUR498 million compared with EUR13 million in gains in the year-earlier quarter. As a result of higher claims costs, including losses in credit insurance, the combined ratio, which compares costs and revenue and strips out the investment result, rose to 98.5% from 94.8%. A figure below 100% means the underwriting business is profitable. In coming quarters, the combined ratio is expected to benefit from efficiency gains.

Allianz sold Dresdner Bank to Commerzbank last year for around EUR5.1 billion, with the closing in mid-January. Allianz has said the total burden related to 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 has had total crisis-related mark-downs of EUR6.7 billion since mid-2007.

Landesbank Baden-Wuerttember analyst Robert Mazzuoli said the final figures were "slightly better than the preliminary figures" presented at the AGM, with life insurance business a positive surprise, as "the traditional business in mainland Europe proved to be more resilient than we had thought," while the combined ratio disappointed. Mazzuoli, who rates the shares at buy, said he expects a limited impact on Wednesday's share price moves "due to the mixed picture of the business segments.

At 0714 GMT, Allianz shares were down EUR1.21, or 1.6%, at EUR74.38, underperforming the wider market, which was up slightly. The share has lost 41% over the past 12 months, bringing the company's current market value to around EUR34 billion.

Company Web site: www.allianz.com

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