The effects of the global stock market slump have hit Allianz hard, as the traditional source of its robust balance sheet - its holdings in large German corporations - has turned into a liability thanks to the Dax index's 47% slide in 2002.

Allianz's troubles combine with the financial hit most insurers suffered following the floods afflicting central Europe last year and the disastrous performance of its banking subsidiary Dresdner Bank, forcing it to a 1.2bn euro net loss for 2002.

The news hit Allianz hard on the markets, and by 1130 GMT its shares were being quoted on the Frankfurt stock exchange at 60.8 euros, more than 6% down on the day. Its shares are already 30% down since January - and less than a quarter of their value of a year ago.

Allianz's recovery plans include a 5bn euro rights issue to which most German banks are expected to subscribe, so as to keep their shareholdings intact.

But it is also withdrawing partially from its cross-shareholding in reinsurer Munich Re, which will do likewise by turning down part of its allotment of Allianz's rights issue.

New broom

Allianz's figures were flagged up late last year, when its third quarter results pointed to the massive loss to come.

At the time, the company's chief executive, Henning Schulte-Noelle, said the firm had "reached rock bottom" - although WestLB Panmure analyst Carsten Zielke described Allianz's financial results as a "catastrophe".

Mr Schulte-Noelle is now on the way out, to be replaced in six weeks' time by Michael Diekmann.

He faces a tricky task in navigating the company through the rights issue, observers said.

"It's a very tricky time to be doing a thing like this and it shows how desperate they are," one London-based fund manager told Reuters.