Europe's biggest insurer, Allianz , is axing hundreds of jobs at its Dresdner Kleinwort investment bank and slashing its complex structured finance business, after suffering big fourth-quarter writedowns.

Allianz confirmed on Thursday it made a record net profit of nearly 8 billion euros ($11.79 billion) in 2007, despite the writedowns that pushed Dresdner into the red and halved the insurer's profit in the final three months of the year.

Allianz finance head Helmut Perlet said the market situation at the end of last month pointed to possible further writedowns of 300-400 million euros at Dresdner for the first quarter after about 1.5 billion euros of subprime writedowns in 2007.

Allianz unit Dresdner Bank, which in turn owns Dresdner Kleinwort, said it was shedding 450 jobs, most already axed, and cutting back on activity in structured investment vehicles (SIV) and other structured debt products, which spread the U.S. subprime loans crisis across the global banking system.

Dresdner Bank will reduce its engagement in the SIV business, as the model of interest arbitrage faces a tough future, Allianz Chief Executive Michael Diekmann said.

Dresdner Bank said it would support its SIV, called K2, to ensure repayment of its senior debt, and had cut its size to $18.8 billion now from $31.2 billion in July.

Allianz said it was not clear whether, or to what extent, it might have to take K2 onto Dresdner's books, but it did not believe that supporting K2 would have a big impact on the group.

Like other insurers and banks, Allianz has been hit by the meltdown in global credit markets, which has prompted billions of euros in writedowns on debt instruments and eliminated a major money spinner in arranging and selling those products.

Allianz shares have fallen more than 25 percent over the last six months, more than the 20 percent drop in the DJ Stoxx European insurance index, as investors worried about exposure to subprime losses at Dresdner.

Allianz had already released key 2007 earnings figures last month in a bid to calm investors about its subprime risks.

As well as a record net profit, Allianz posted a 5 percent rise in operating profit to 10.9 billion euros last year, just short of its 11 billion euro goal.

That result allowed it to propose raising its dividend by nearly half to 5.50 euros per share for 2007, it said.


Diekmann said the group was well positioned to achieve its medium-term targets but sounded a note of caution about 2008.

Financial markets and their future development will have a stronger impact on our business results than usual, he said.

DZ Bank analyst Thorsten Wenzel said that while Allianz was sticking to its goal of raising operating profit by 10 percent a year on average, he took note of Diekmann's caveat.

This obviously implies that the downside risk to this target has increased, Wenzel said in a note to clients.

Allianz shares were 2.2 percent higher at 120.03 euros by 1325 GMT, lagging a 2.8 percent gain on the DJ Stoxx European insurance index but outpacing a 1.3 percent rise on the German blue-chip DAX index.

In the fourth quarter, operating profit at its main property and casualty insurance business rose over 25 percent, but life-health profit fell 12 percent, while banking posted an operating loss of over 450 million euros. Net profit fell to 665 million euros from 1.372 billion in the year-earlier period.

Separately, the Financial Times Deutschland newspaper reported on Thursday that Allianz may be interested in buying Germany's biggest retail bank, Postbank, and had already held talks with Postbank's owner, Deutsche Post. The paper did not cite a source for its story.

Diekmann declined to comment specifically but welcomed the idea there was some movement toward consolidation in the German banking market.

He also said a share buy-back was not on the cards at Allianz for the time being.