Credit crunch cripples European insurers' profits

By Sudip Kar-Gupta and Reed Stevenson

PARIS/AMSTERDAM (Reuters) - The global credit crisis tore a hole in the profits of some of Europe's top insurers on Thursday, with AXA (AXAF.PA) and Aegon (AEGN.AS) both posting sharply lower earnings.

The news came after Allianz (ALVG.DE) and American International Group (AIG.N) revealed continued weakness in their businesses, weighed down by risky investments and continued financial market turmoil.

But insurance stocks as a whole were resilient, with the DJ Stoxx European banking index .SXIP up 0.3 percent by 10 a.m., caught between relief over AXA saying it did not need a capital increase and disappointment over Aegon and Allianz's results and outlook.

But credit spreads widened a bit, ahead of interest rate decisions by the Bank of England and European Central Bank, with the investment-grade Markit iTraxx Europe index at 95 basis points, according to data from Markit, 1 basis point wider from Wednesday.

AXA, Europe's second-biggest insurer, said net profit fell 32 percent to 2.162 billion euros (1.714 billion pounds), partly because of writedowns on fixed income assets due to the financial market turbulence. AXA, whose shares rose 6 percent to 21.6 euros in Paris, also proposed a stable 2008 dividend of 1.20 euros per share.

Aegon (AEGN.AS) said impairments on U.S. credit and subprime mortgage investments had hurt its second-quarter earnings, and its shares fell while reinsurer Hannover Re (HNRGn.DE) also published lower profits. Aegon was down 4.5 percent at 7.89 euros, the biggest decliner in the index.

Bucking the trend was commercial insurer RSA Insurance Group (RSA.L), which eked out a first-half profit rise and saw its shares rise 2 percent in London.

The credit crunch, sparked by losses on U.S. subprime mortgages, has hit insurers around the world. Falling stock markets have affected insurers since many of them hold their assets in equities.