(Repeats with link to related Reuters Insider video item)
* Investors withdraw more than 20 bln euros from Pimco
* Q2 net profit 1.76 bln eur vs Rtrs poll avg 1.55 bln
* Eyes FY op profit at top of 9.5-10.5 bln eur range
* Diekmann says he's "always up for" staying at helm
* Shares up 0.8 percent, sector index 0.6 percent lower
By Jonathan Gould
FRANKFURT, Aug 8 Problems at Allianz's U.S. investment firm Pimco persisted in the second quarter as clients defected and margins slipped, posing a challenge for the chief executive of Europe's biggest insurer who aims to make a record group profit this year.
Allianz said on Friday investors withdrew more than 20 billion euros ($26.8 billion) from Pimco in the second quarter, casting a shadow over results at its insurance divisions that beat even the highest of analysts' forecasts.
Group operating profits of 2.8 billion euros in the quarter take Allianz more than halfway towards its goal of earning 10 billion euros, plus or minus 500 million, in the full year.
"We expect the upper end of the target range to be in reach," Allianz's chief executive Michael Diekmann said in a statement.
Diekmann's contract as chief executive expires in December but big shareholders expect the 59-year-old to stay on at the helm of the company he has led for more than a decade. A decision on his role is due in October.
Asked in a conference call with reporters if he would want to carry on in the top job, Diekmann said, "I'm always up for it."
But the performance at Pimco remains a problem even though Diekmann oversaw a restructuring of Pimco's leadership structure earlier this year.
Investors have been withdrawing money from Pimco's flagship Total Return Fund, the world's largest bond fund, due to a weakening performance and to position themselves for a rise in interest rates in the United States.
Pimco founder Bill Gross's public falling-out with former heir-apparent Mohamed El-Erian, who shared the co-chief investment officer title, has also added to the unease amongst investors.
The Total Return Fund, which is managed by Gross, posted its 15th straight month of investor withdrawals in July, despite an improving performance.
However, Allianz, said on Friday the pace of investor outflows at Pimco had slowed and was coming almost entirely from retail, rather than sophisticated institutional investors.
"We did expect that it will take some months after the dip in last summer's performance at Pimco before it will recover," Chief Financial Officer Dieter Wemmer told Reuters TV.
"The performance of Pimco's fund is back on track. That is the basis for future results," he said.
Operating profit at the group's asset management division, which includes Pimco as well as smaller asset manager Allianz Global Investors, fell by 16 percent in the second quarter to 675 million euros.
In contrast analysts said Allianz's other businesses -- property-casualty and life-health insurance -- looked set to carry operating profit above the company's target range for the full year.
"Allianz's guidance, which has in our view always been very conservative, now looks even more so," said Berenberg analyst Peter Eliot in a research note.
"We expect it to be beaten," he said of the 2014 target.
Operating profit last year rose 7.8 percent to just under 10.1 billion euros.
Diekmann said the company would stick to its plans to review its dividend policy at the end of the year but had not discussed, as some analysts have urged, an increase in the dividend payout to 60 percent or more of net profits, from about 40 percent now.
"We want shareholders to participate in the earnings increase and not simply open our wallets and raise the payout ratio," Diekmann told reporters.
Allianz shares were up 0.8 percent at 122.4 euros by 1128 GMT, when the Stoxx Europe 600 insurance sector index was down 0.4 percent in an overall weaker market.
For the second quarter Allianz also posted a 10.5 percent rise in net profit to 1.76 billion euros topping the highest forecast of 1.66 billion euros given in a Reuters poll of analysts. (1 US dollar = 0.7466 euros) (Additional reporting by Kathrin Jones and Alexander Huebner; Editing by Thomas Atkins and Greg Mahlich)