May 13 (Bloomberg) -- Allianz SE, Europe’s biggest insurer by market value, said first-quarter profit plunged 97 percent after the value of investments fell and the company ended its seven-year foray into banking, selling Dresdner Bank at a loss.

Net income fell to 29 million euros ($39.7 million), or 4 cents a share, from 1.15 billion euros, or 2.48 euros, a year earlier, the Munich-based insurer said today in a statement. The company took a charge of 395 million euros on the January sale of Dresdner and said it lost 752 million euros on investments, mostly on stocks.

Allianz joins insurers including Axa SA and Zurich Financial Services AG in posting lower earnings after declines in equity and bond markets led to investment losses. Chief Executive Officer Michael Diekmann is re-focusing on Allianz’s insurance operations after selling Dresdner to Frankfurt-based Commerzbank AG for 5.1 billion euros.

“The recession is still burdening Allianz’s results,” said Andreas Weese, an analyst at UniCredit SpA in Munich with a “buy” rating on Allianz. “Nevertheless Allianz’s capital base remains strong, making it one of the most solid insurers.”

The combined ratio, or spending on claims and other costs compared with premium income, worsened to 98.5 cents per euro from 94.8 cents at the property and casualty insurance unit, Allianz’s biggest in terms of profit. The rise was a “negative surprise,” Weese said.

Shares Decline

Allianz fell 7.8 percent to 69.74 euros in Frankfurt trading today, the biggest drop in more than six weeks. That extended the stock’s decline in the past 12 months to 46 percent, and gave the company a market value of 31.6 billion euros. The 33-member Bloomberg Europe 500 Insurance Index lost 43 percent in the past year.

Net income from continuing operations, which reflects the sale of Dresdner completed on Jan. 12, fell 69 percent to 424 million euros, the company said.

Operating profit declined 36 percent to 1.42 billion euros, exceeding a forecast Diekmann gave shareholders at their annual meeting on April 29, when he said operating profit probably fell 41 percent to about 1.3 billion euros. Operating profit at the property and casualty insurance unit slipped 34 percent to 970 million euros.

Allianz in November scrapped its operating profit forecasts for 2008 and 2009 because of the turmoil in financial markets. Since then, Allianz has repeatedly said that reliable profit forecasts for 2009 aren’t possible because of the difficult conditions on capital markets.

Solvency Ratio

Allianz’s solvency ratio, a measure of its ability to absorb losses, fell to 159 percent by March 31 from 161 percent at the end of 2008. That’s within the company’s target range of 150 percent to 170 percent. The solvency ratio would fall to 143 percent if stock markets declined another 30 percent from the end of March, Chief Financial Officer Helmut Perlet said.

Allianz expects writedowns of 300 million euros to 400 million euros on its equity investments in the second quarter “if markets stay where they are,” Perlet said in a conference call. “This is more than compensated by realized gains we’ve already harvested in April,” he said in a Bloomberg Television interview.

Allianz last month halved its stake in Industrial & Commercial Bank of China Ltd., the world’s largest lender by market value. The sale resulted in a capital gain of approximately 700 million euros that will be booked in the second quarter, it said on its Web site. Allianz now owns about 1 percent of the Beijing-based lender.

‘Signs of Recovery’

While Allianz’s life- and health-insurance division “saw the first signs of recovery during the first quarter,” the unit’s operating profit fell 32 percent to 402 million euros. Statutory premiums at the unit rose to 13 billion euros from 12.3 billion euros on “greater demand for traditional-style products” and more sales via banks.

“We see renewal prices starting to rise after almost three years of soft markets” in property and casualty insurance, Perlet said.

Axa, Europe’s second-biggest insurer, said on May 7 that first-quarter revenue dropped 1.7 percent to 27.6 billion euros on lower fees from asset management and after the financial crisis curbed demand for life-insurance policies. Zurich Financial, Switzerland’s biggest insurer, said the same day that first-quarter profit dropped 75 percent to $362 million, hurt by losses on investments.

To contact the reporters on this story: Oliver Suess in Munich at osuess@bloomberg.net.

Last Updated: May 13, 2009 11:47 EDT