(Reuters) — Europe's two top insurers, Allianz S.E. and Axa S.A., reported forecast-beating earnings on Friday even as both keep a wary eye on looming regulations, with Axa's CEO warning of the dangers of an "avalanche of bureaucracy."

Like other insurers, the two have been struggling against low interest rates that crimp the yield they can earn on their investments but both managed to achieve stronger than expected gains in operating profit, helped by strength in asset management and their property and casualty insurance businesses.

Axa's net profit was marred by an accounting loss related to interest rate hedging and other one-offs, but investors focused on a 16% gain in underlying earnings, bidding up its shares by 3.4%. Allianz shares rose 1.5%, with asset flows at giant U.S. fund management unit Pimco remaining a concern for some investors.

In addition to low interest rates, uncertainties about a raft of tightening regulation are weighing on the sector.

Allianz and Axa are among nine global insurers that have been listed as "systemically relevant" by international regulators for posing a potential threat to the financial system should they fail. Insurers on the list face tighter scrutiny and additional capital charges that would act as a safety buffer.

Axa Chief Executive Henri de Castries told a news conference he was taking a "watchful and interested" stance toward the designation: "watchful because we don't want this to translate into an avalanche of additional bureaucracy; interested because if these efforts lead people to believe insurers lend stability to the financial system, it will be a good thing."

Allianz, for its part, said it was confident of meeting any additional capital demands from the designation.

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Turning to a related regulatory issue, Castries said the failure to reach a deal on uniform risk-capital rules, known as Solvency II, was a growing problem for the industry and urged a quick compromise once talks to finalise them are renewed in September.

"The alternative, if Solvency II were to fail, if the Europeans couldn't reach a deal, would be the risk of 28 different solvency regimes," he said.

Some countries are already moving in that direction.

Britain is introducing extra capital safeguards and "warning indicators" for insurers because it doesn't trust the in-house models insurers will use to calculate capital requirements under the E.U. rules.

Allianz said the learning curve for internal models was steep for insurers, regulators and credit ratings agencies alike but warned against reverting to simple ratios to cut through the complexity.

"We had a simple solution with Solvency I but a return to Solvency I is not the answer," Allianz CFO Dieter Wemmer said, adding that the rules for supervising insurers up to now do not adequately reflect market risks and are outdated.

Solvency II was meant to be in force by now but was delayed after Britain, Germany and France called for a rethink over how products that offer guaranteed returns over the long term are treated to avoid overly burdensome capital requirements.

On Thursday, British insurer RSA Insurance Group P.L.C. said the rules should be finalized this year to avoid prolonged delay and uncertainty for markets.

Credit rating agency Standard & Poor's Corp. warned on Friday that insurers should not use delays in finalizing the regulation as an excuse to drag their heels on starting to comply.

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"We will view negatively those insurers who use the extra time to delay taking actions," S&P credit analyst Rob Jones said in a note.

Axa's half-year and Allianz's second-quarter results beat analysts forecasts, helped in both cases by better-than-expected results at their non-life businesses.

Axa shares may have been the greater beneficiary largely because of valuation; the French group's stock trades at 8.8 times 2013 earnings, while Allianz's multiple is 9.4.

"I think with regards to Allianz there are still fears with regard to Pimco and its reliance on the U.S. bond market," said Harry Wolhandler, managing director at Amilton Asset Management in Paris. "We own both stocks but we think that because of valuation there's greater room for near-term appreciation for Axa."

Allianz executives told investors they thought the concerns about Pimco, whose largest fund has been rattled by fears of higher U.S. rates, were overblown.