Allianz SE (ALV.XE), Europe's largest insurer by gross premiums and market capitalization, Friday reported a 46% slump in net profit for the second quarter on lower income from own investments and higher costs related to storms and floods.

It also said it is on track for an operating profit of about EUR7.2 billion for 2010, give or take EUR500 million.

It reported improvements in property/casualty insurance and asset management.

"Based on this very good result, we are confident that we can achieve our outlook for operating profit for the entire year [...]," Chief Executive Officer Michael Diekmann said.

Second-quarter net profit attributable to shareholders was EUR1.02 billion, down from EUR1.87 billion in the same period a year ago. The figure was below a forecast EUR1.15 billion in a Dow Jones Newswires poll of 15 analysts.

The lower net profit is in line with the trend among other European insurers, which generally posted lower net profits in the quarter, as they had to take a number of hits from weather-disaster claims and the U.S. oil spill.

Operating profit, which many investors consider to better reflect a company's true performance from normal operations, rose 23% to EUR2.19 billion from EUR1.79 billion, substantially outpacing the forecast EUR1.84 billion.

At 1209 GMT, Allianz shares were up EUR1.04, or 1.2%, at EUR91.17.

Analysts generally issued upbeat comments about the earnings. The results were strong, SEB analysts wrote, noting that the net profit decline over the previous year shouldn't be overrated, as the year-earlier quarter was characterized by an extremely high investment result.

The earnings reflect a "strong operating performance," LBBW analyst Robert Mazzuoli wrote, pointing to the better-than-forecast operating profit, combined ratio and prospering asset management. He called the outlook promising, with stable or growing margins in life and asset management, and a turnaround of former loss-makers, such as credit insurance and U.S. life.

Overall, Allianz, which competes with French Axa SA (CS.FR), Swiss insurer Zurich Financial Services AG (ZURN.VX) among others, is still benefiting from investor relief after the successful sale of Dresdner Bank to Commerzbank AG (CBK.XE), completed in January 2009. The bank, which Allianz had bought in 2001, had burdened the insurer's earnings for more than half a decade.

Analysts in general expected lower realized gains on stock investments than in previous quarters, visible in a weaker contribution from items known as non-operating items.

Allianz paid EUR255 million for claims caused by natural disasters in the quarter, such as a tornado in Saxony, flooding in Central and Eastern Europe and a hailstorm and flash floods in France. Together with the EUR555 million in the first quarter, the total burden from large natural-disaster claims amounts to around EUR810 million to date, or 90% of Allianz's EUR900 million full-year budget for such claims.

The higher disaster claims weighed somewhat on the combined ratio in property/casualty insurance. Offsetting part of the claims impact was the release of reserves made for potential claims that were no longer needed. Improvements in credit insurance and industrial insurance business also contributed to lower the ratio.

The combined ratio was 96.3%, a beat of the forecast 97.4% and below the year-ago figure of 98.9%. It was also better than many peers.

The combined ratio is a widely watched measure of an insurer's profitability in its core underwriting business, when stripping off the investment result. The ratio compares how many cents an insurer has to pay per euro premiums earned for claims and other costs; a figure below 100% means the insurer made a profit in its underwriting business, a figure above 100% means it made a loss.

While European insurers generally got through the financial crisis without too many blemishes, they have been hampered by rising insurance claims and enhanced price competition in key areas such as motor insurance business, where players are underscoring each other. In addition, life insurers have been challenged by the low interest-rate environment, which makes it more difficult to meet pledges to policyholders. Market conditions in the industrial business will remain challenging this year and next, Allianz said at a recent investors day.

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