Allianz SE (AZ), Europe's largest primary insurer by market value, Friday posted a 16% decline in second-quarter net profit on continuing operations, as contributions from its property/casualty business fell and on start-up costs for its remaining small banking business.

These drags on earnings were only partially offset by higher realized gains on the insurer's investments.

The company gave no concrete earnings target for 2009, saying the market environment companies will remain challenging.

It said, however, that it remains strongly capitalized, that its low-risk profile and good diversification allow it to withstand potential market shocks and benefit from market upturns. It also said it accrued a dividend equivalent of EUR900 million for the first half, compared with EUR200 million in the first quarter.

"Allianz is prepared for what we perceive as the 'new normal,' an ongoing challenging market environment with structurally lower returns," Chief Executive Michael Diekmann said.

At 0749 GMT, Allianz shares were down EUR1.77, or 1.8%, at EUR73.74, underperforming the wider market, which was down 0.4%.

Analysts said investors were focused on the lower quality of earnings, such as high net realized gains on the investment portfolio that won't necessarily be repeated and the weaker contribution from the property/casualty business, Allianz's main revenue and profit driver.

Second-quarter net profit fell to EUR1.87 billion from EUR2.23 billion in the year-earlier quarter, above the EUR1.48 billion average forecast in a Dow Jones Newswires.

The year-earlier figure has been restated to reflect continuing operations only, after Allianz sold Dresdner Bank. Including the EUR683 million loss contribution from discontinued operations in the year-earlier quarter, Allianz's net profit was up 21%.

Allianz sold Dresdner Bank to Commerzbank AG (CBK.XE) last year for 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.

Operating profit, which some analysts consider to better reflect operational performance, fell 33% to EUR1.79 billion from EUR2.66 billion, mainly due to the weak property/casualty business, which almost halved the profit. Life/health insurance, meanwhile, had its strongest quarter ever to date, with profit rising 41% profit to EUR990 million.

Property/casualty took hits from the recession, a high number of small weather-related claims, a number of large claims in France and an earthquake in Italy, Allianz said.

The recession leads to higher claims in credit insurance. Allianz is the majority owner of Euler Hermes SA, one of the world's largest credit insurers. This is also reflected in the higher combined ratio that rose to 98.9% from 93.5% a year earlier. The combined ratio compares revenue and costs; a figure below 100% means an insurer's underwriting business is profitable.

Total revenue, which includes sales generated by the insurance and asset management operations and a small banking business, rose 3% to EUR22.2 billion from EUR21.5 billion a year earlier, above the forecast EUR21.86 billion.

The share has lost 33% 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