FRANKFURT, Germany (AP) _ German insurance giant Allianz said Thursday it lost 1.2 billion euros ($1.3 billion) last year, citing heavy investment losses due to the decline in stock prices and trouble at its Dresdner Bank subsidiary.

The loss was lower than some analysts' estimates of potential losses of as much as 2 billion euros ($2.1 billion). Allianz earned 1.6 billion euros in 2001.

But investors were dismayed by the company's plans to issue new shares to shore up its capital base, a move that dilutes existing holdings.

Allianz shares fell 8.2 percent to 59.50 euros ($63.07) on the Frankfurt exchange.

It reported a 9.9 percent rise in premium income for its core insurance business to 82.6 billion euros ($87.6 billion) last year.

But it also said it lost 5.5 billion euros ($5.8 billion) on investments and 1.4 billion euros ($1.5 billion) at Dresdner Bank, whose chief executive, Bernd Fahrholz, quit Wednesday and will be replaced by Deutsche Bank executive Herbert Walter.

Allianz also cited an increase in reserves for asbestos claims at U.S. group Fireman's Fund and payouts for heavy flooding in Eastern Europe last August.

For the fourth quarter, Allianz said it lost 243 million euros ($258 million), compared with a profit of 304 million euros in the same period the previous year.

Dresdner Bank's results mean that three of Germany's four biggest banks have posted heavy losses for the year, with Dresdner joining Commerzbank and HVB. Like the others, Dresdner deducted a hefty sum _ 2.2 billion euros ($2.5 billion) _ for bad loans.

Germany's sluggish economy has led to an increase in bankruptcies and bank loan defaults. No. 1 Deutsche Bank remains profitable but has also shown large losses from bad loans.

``We are on an important journey in rough seas,'' said incoming Allianz chief executive Michael Diekmann, who takes over from Henning Schulte-Noelle in April. ``The strategy is the right one.''

Allianz said it planned measures to increase its capital base by up to 5 billion euros ($5.3 billion), including 3.5 billion euros ($3.7 billion) from the issue of new shares and 1.5 billion euros ($1.6 billion) in borrowing.

The planned rights issue was bigger than expected, a drawback for shareholders since it dilutes the value of existing shares, said analyst Werner Schirmer at Landesbank Baden-Wuerttemberg.

``The rights issue is definitely a negative,'' Schirmer said. ``The earnings numbers seem to be good, at least they were better than expected.''

Analyst Karlos van Endert of BNP Paribas said the premium growth in the insurance business was a plus. The capital increase and the replacement of Fahrholz showed that ``Allianz is tackling its problems,'' he said.