Allianz is on course for its 2007 earnings goals despite renewed pain at problem child Dresdner Bank which saw 575 million euros ($845 million) in write-downs in the third quarter and warned of more.
Europe's biggest insurer pleased investors on Friday by reporting a quarterly net profit rise of more than one-fifth, above the highest forecast in a Reuters poll.
But Dresdner lurched into the red in the wake of financial market turbulence, rekindling memories of the bank's early troubled history after the insurer bought it in 2001.
"We are confident that we will reach our operating profit goal of 11 billion euros this year, despite everything," Allianz's finance chief Helmut Perlet told a conference call.
"I assume that we will see write-downs in the fourth quarter but we took that into account in confirming our goals," he said.
Billions of dollars in shock write-downs at Merrill Lynch,Citigroup and Morgan Stanley in recent weeks have kept investors nervous about which banks might next be seared by the subprime mortgage crisis.
Allianz's shares initially rallied on relief that the write-downs at Dresdner were not higher, trading up nearly 6 percent to make the company the biggest gainer on the bluechip DAX index.
Allianz later pared gains to trade up 0.4 percent at 142.01 euros by 1328 GMT, bucking a 2.2 percent drop among European insurance peers.
Perlet said group results were being hurt by the weak dollar, which had robbed it of 250 million euros in operating profit in the first nine months, on top of the 575 million euro hit to business from the subprime-related financial crisis booked in the third quarter.
That hit included a write-down of 350 million euros on its trading book for asset-backed securities, 30 million on leveraged finance and a hit of nearly 200 million euros in other business lines.
UniCredit analyst Lucio di Geronimo said he expected another 200 million-300 million euros in write-downs in the fourth quarter.
"But Allianz's results overall were very good and show the strength of the operating insurance business," he said.
Operating profit at Allianz fell more than 2 percent to 2.6 billion euros in the third quarter but was well ahead of analysts' expectations for a 13 percent decline.
Net profit rose to 1.9 billion euros, one-third above the average forecast in the Reuters poll, allowing the group to confirm its 2007 net profit target of 8 billion euros.
The lion's share of net profit came from Allianz's main business of property and casualty insurance but life and health insurance and asset management also contributed, helped too by special factors.
But a 147 million euro operating loss at Dresdner's investment bank Dresdner Kleinwort renewed speculation that the unit might eventually be sold.
"I certainly expect that Dresdner Bank will be broken up in the next few years," UniCredit's di Geronimo said. "Allianz will keep the retail business and sell the corporate and investment banking part."
On Friday, Allianz's share price was still down nearly 10 percent over the last three months, lagging European insurers but ahead of banking peers, which were down 7 and 15 percent, respectively, over the period.
Fires in California were expected to cost the insurer $60 million, Perlet said.
Allianz shares trade at about 7.3 times expected 2008 earnings, compared with a multiple of 9.6 for peers, JP Morgan said in a research note ahead of the results release.