FRANKFURT (Reuters)—Allianz S.E. warned on Tuesday that fallout from the euro zone crisis could cause it to stumble even though Europe's biggest insurer reported a 40% jump in first quarter earnings.

"We expect further shocks before the situation finally calms down and therefore we remain very cautious," chief financial officer Oliver Baete told a conference call with journalists.

"As a company with total assets of over 600 billion euros ($770.28 billion), we hang on the (financial) markets."

Political instability in Greece and the prospect that it might exit the euro sent European stock prices plunging this week.

"That would have terrible consequences for Greece and must be avoided at all costs," Mr. Baete said, adding that a Greek exit could spur contagion and would be costly for German taxpayers.

"We are very concerned about the situation in Spain, particularly the coming recapitalisation of the banking sector, which must now succeed," Mr. Baete said.

Allianz wrote 77 million euros off the value of its stake in Spain's Banco Popular, an Allianz partner in asset management and life insurance, in the first quarter.

Mr. Baete said Allianz's stake in Spain's No. 5 retail lender would fall to just under 5% in the next two years, from over 7%, due to Popular's merger with rival Pastor.

On the situation in Italy, Mr. Baete said Allianz was confident in the country's government and financial system, despite a credit rating downgrade by Moody's of 26 Italian banks.

The insurer benefited from a decline in financial market volatility in the first quarter, with unrealised losses on its portfolio of government bonds from the euro zone's periphery states falling to 1.16 billion euros at the end of March from 3.71 billion at the end of December. The decline was largely due to a rally in Italian government bonds.

Allianz is on its way toward its target of earning 8.2 billion euros, plus or minus 500 million, in operating profit this year. Mr. Baete would not say if it might reach the top of that range.

The insurer confirmed quarterly operating profit rose to 2.330 billion euros, helped by low damage claims and rising revenue, particularly in its property-casualty business.

The company had published preliminary first quarter figures last week.

Damage claims from natural catastrophes were just 42 million euros, down by 695 million from last year, during which there were devastating earthquakes in Japan and New Zealand.

Operating profit in Allianz's main money-spinner—property/casualty insurance—surged 80% to 1.189 billion euros. Operating profit in life and health insurance rose 18%, as improving investment income offset a fall in revenue. Profit from asset management rose 16%.

Group revenue overall rose just 0.5%, roughly in line with Europe's No. 2 insurer Axa in the first quarter.

Allianz's shares rose 1.5% to 78.28 euros by 12:20 GMT, outpacing a flat STOXX Europe 600 insurance index.

It has risen by nearly 6% this year, outpacing a 2% rise in the insurance index, while Axa has fallen 5% over the same period.

According to Thomson Reuters StarMine, which weights analyst forecasts according to their track record, Allianz trades at 6.7 times 12-month forward earnings, a premium to Axa, which trades at a multiple of 5.1.