Allianz, Europe's largest insurer, yesterday threatened to move key business operations out of Germany if the Social Democrat-led government presses ahead with tax reforms targeting insurance companies.

Mr Helmut Perlet, Allianz's chairman, described the government's plans as "unjust and overdone" and warned they would cost the group 2.5 billion deutschmarks (€1.28 billion) between this year and 2002.

He estimated the reforms would impose an extra DM18 billion to DM20 billion in taxes on the German insurance industry as a whole in the same four-year period.

Allianz's threat is the latest sign of discontent in the German business community with the economic policies pursued by the Red-Green coalition government in Bonn elected last September.

Mr Perlet, speaking in Munich after a meeting of Allianz's supervisory board, said the company was thinking of moving its asset management, reinsurance and international industrial insurance businesses out of Germany if the government introduced the tax reforms.

Any transfer of the asset management business to a foreign base - such as London - could make a deep impression on German politicians and businessmen. Allianz is one of the world's 10 leading companies in this field and has about DM660 billion of assets under management.

The tax reforms are likely to hit insurance companies because the government is considering proposals to limit depreciation allowances on assets and to discount loss reserves on property and casualty insurance activities.

However, some investors hope the reforms, though capable of reducing insurers' profits in the next few years, may benefit shareholders in the longer run.

"With these changes in place, the German insurance industry would come under pressure to improve current income and shareholder value, rather than just building up the hidden value of the company," one German analyst said.