MUNICH (Bloomberg)—Allianz S.E., Europe's biggest insurer, raised its dividend after fourth-quarter profit climbed 11% and the company exceeded its full-year forecast.

Net income in the three months ended December increased to €1.14 billion ($1.57 billion) from €1.02 billion ($1.40 billion) in the year-earlier period, the company said Thursday. That was in line with the €1.15 billion ($1.58 billion) average estimate of eight analysts surveyed by Bloomberg. Allianz proposed paying a dividend of €4.50 ($6.19) a share, up from €4.10 ($5.64) for 2009.

Allianz forecasts operating profit of €7.5 billion to €8.5 billion ($10.31 billion to $11.69 billion) this year, CEO Michael Diekmann, 56, said at a press conference in Munich Thursday. That compares with €8.2 billion ($11.27 billion) in 2010, which topped the upper end of the insurer's targeted range.

“The key question is, if earnings are so strong, at what point will they say more about capital returns and plans for acquisitions,” said Ben Cohen, a London-based analyst at Collins Stewart with a “hold” recommendation on the shares.

Allianz's solvency ratio, a measure of the insurer's ability to absorb losses, rose to 173% in the quarter from 164% at the end of 2009. That's above the company's target range of 150% to 170%, indicating Allianz has excess capital for possible takeovers or increased payouts to shareholders.

The insurer is “still cautious regarding acquisitions” before new Solvency II capital rules for the industry are introduced in Europe, Mr. Diekmann said Thursday.

Property/casualty

Allianz shares fell €3.35 ($4.61), or 3.2%, to €101.25 ($139.19) as of 11:54 a.m. in Frankfurt on Thursday. They have gained 14% this year, beating the Bloomberg Europe 500 Insurance Index, which is up 11% over the period.

Solvency II, scheduled to be introduced in 2013, is “developing into a threat to traditional retirement provision,” and regulators “should not lose sight of the fact that our business model has been operating without any hitches during the crisis,” Mr. Diekmann said, echoing previous comments by industry groups.

Allianz's property/casualty insurance unit reported a 1% increase in net income to €804 million ($1.11 billion) in the fourth quarter. The unit's spending on claims and other costs as a percentage of premiums, also known as the combined ratio, improved to 94.9% from 95.3% a year earlier. A ratio above 100% means an insurer's claims and costs exceed premium income, giving it a loss from underwriting.

Life insurance

Profit at the life- and health-insurance division declined 29% to €268 million ($368.4 million) after a one-time tax refund wasn’t repeated. That missed the €461 million ($633.7 million) average analyst estimate.

Allianz’s asset-management unit, which includes Newport Beach, Calif.-based Pacific Investment Management Co., posted a 51% profit gain to €292 million ($401.4 million). For the full year, total assets under management grew 26% to a record €1.52 trillion ($2.09 trillion), Allianz said.

The insurer held €8.1 billion ($11.14 billion) in sovereign debt from Spain, Greece, Ireland and Portugal at the end of last year, representing about 2% of its fixed-income investments. Holdings in Italy, where the insurer has a subsidiary, accounted for 20% of Allianz’s €142.3 billion ($195.62 billion) portfolio of government and government-related securities, the company said.

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