Allianz and Generali followed rivals in aggressively writing down holdings of Greek government bonds on Friday, fuelling investor concerns about the possible impact on insurers of a worsening sovereign debt crisis.

Analysts say major European insurers have moderate exposure to Greek sovereign bonds, but would face more damaging losses in the event of a default by bigger debtors such as Spain or Italy.

The release of quarterly earnings by the insurers is the first real indication from them of the cost of their exposure to Greek bonds, giving investors a taste of the potential losses.

Shares in Allianz, Europe's largest insurer, were worst hit and had dropped by 2.8 percent at 1420 GMT. The stock was one of the biggest decliners in the Stoxx Europe 600 insurance sector index, itself 0.7 percent lower amid the wider market slump.

Allianz reported an 8.2 percent decline in its second-quarter profit, wrong-footing analysts on their expectations of a 23 percent increase. The German insurer wrote off half the value of its Greek sovereign exposure, cutting net profits by 326 million euros ($462 million).

Today is not an ideal day to report results and this is particularly true when net income misses on the back of a Greek sovereign writedown, Espirito Santo analyst Joy Ferneyhough said in a note.

Global stock markets have tumbled in the past five days, with the FTSEurofirst share index down nearly 11 percent, on mounting fears of another U.S. recession and as worries about European sovereign creditworthiness spread from Greece to Spain and Italy.

Italy's Generali also took a sizeable hit on its Greek debt, writing down the value of its holdings by 47 percent. The company still managed to beat analyst forecasts with a 12.7 percent increase in operating profit.

Generali's shares were 0.4 percent higher, putting them among a small handful of insurance stocks to remain in positive territory.

Allianz and Generali's writedowns follow a similar approach from rivals Axa and Munich Re, who on Thursday took haircuts of 40 percent and more than 50 percent respectively on their Greek bonds.

The writedowns exceed the 21 percent cut agreed by private sector creditors in last month's second Greek bailout package, an approach that has also been taken by some of the banks which signed up to the deal.

We estimated 21 percent to be sufficient ... but the company decided to execute kitchen sinking and write down to market value. We appreciate this, Kepler Capital Markets analyst Fabrizio Croce wrote in a note.

Allianz said taking the tough line by writing down holdings of Greek bonds to their market value might create scope for reversing some of that loss in future, once the rescue plan for Greece is put into effect.

In an interview with Reuters Insider TV, Allianz's chief financial officer Oliver Baete declined to speculate about the amount of any write up but highlighted the gap with companies that had been less severe with their own Greek writedowns.

If we had taken measures as others had done, we would have written down 200 million (euros) less than we have, Baete said in the interview.

Writebacks could begin as early as this autumn, he said.

It depends on when policymakers are back from vacation and we start to see implementation of the policy measures decided, he said.

Prudential, which reported a forecast-beating 25 percent rise in profit thanks to strong growth at its flagship Asian unit, said it was insulated from the eurozone crisis as its risky sovereign holdings amounted to just 53 million pounds ($86.5 million).

But the British insurer's shares fell by 2.2 percent.

And although Anglo-South African insurer Old Mutual said turmoil on world stock markets may delay the planned share flotation for its U.S. fund management business next year, it too reported robust earnings.

The company, which beat forecasts with a 15 percent profit increase, said it also offered a safe haven from the eurozone crisis, with less than 5 million pounds of risky sovereign debt on its books. However, its shares fell by 2.8 percent.

(Editing by Alexander Smith and Greg Mahlich)