Shares in Axa SA (AXA) jumped Wednesday after the French insurer said first-half net profit dropped less than expected and its U.S. business recovered from a difficult end to last year.

Europe's second-largest insurer by market capitalization said it remains ready to ride out any market turbulence still to come.

"We are prepared to withstand a further possible market downturn and we are well-positioned to benefit from a market upturn," Chief Executive Henri de Castries said. He declined to give a forecast for the rest of 2009, noting that a number of uncertainties still hung over the economic environment.

The group said its Solvency 1 ratio reached 133% at the end of June, up from 127% at the end of December.

Net profit for the six months ended June 30 decreased 39% to EUR1.32 billion from EUR2.16 billion a year earlier, significantly above an average EUR592 million forecast by a Dow Jones survey of nine analysts. The profit was also a stark improvement compared with the EUR1.24 billion net loss the insurer suffered in the second half of 2008.

Axa's first-half results and balance sheet are solid, Nick Holmes, a London-based analyst at Nomura said in a note to investors.

"The earnings strength mainly comes from a significant turnaround in the U.S., as expected, highlighting that AXA has largely resolved the challenges facing its variable annuity hedging program," said Holmes, who has a buy rating on Axa stock.

Problems with hedging on the variable annuity products amid financial market turmoil helped to drag Axa into the red in the second half of 2008. The group has since overhauled the operations but remains committed to providing the products, de Castries said.

At 1157 GMT, Axa shares traded up EUR0.76, or 4.9%, at EUR16.07, outperforming a 2.1% rise the Stoxx 600 European insurance index. Prior to Wednesday, the stock had gained 18% in the previous six months, outshining the Stoxx 600 insurance index, as financial markets began to return to normal and fears of a potential capital increase subsided.

Underlying earnings, which exclude capital gains or losses on financial assets, slid 24% to EUR2.12 billion from EUR2.77 billion a year earlier. That was still above the EUR1.73 billion expected by analysts.

As a part of measures to offset the damage financial market instability has done to earnings, Axa has put into action efforts to reduce expenses, Chief Financial Officer Denis Duverne said. The initiatives, first mentioned in February, should yield EUR600 million in savings in 2009 and 2010 with the full effect to be felt in 2010, Duverne said.

Axa's asset-management activities, where a EUR13 billion fall in assets under management dragged down revenue, reported the steepest drop in underlying earnings, down 38% to EUR176 million.

The group's two largest earnings generators, its life-and-savings and property-and-casualty divisions, posted 12% and 13% declines in underlying earnings, respectively.

Revenue fell 1.8% to EUR48.41 billion from EUR49.32 billion a year ago, slightly beating the EUR47.9 billion forecast by analysts.

Company Web site: www.axa.com

-By Jethro Mullen, Dow Jones Newswires; 33 1 4017 1738; jethro.mullen@dowjones.com