European insurers Axa and Zurich Financial suffered on all sides last year as Europe's debt crisis ate into their sovereign bond holdings, catastrophe claims emptied their coffers, and the downturn cut demand for life cover.

Axa, Europe's No. 2 insurer, said adjusted earnings fell 15 percent to 3.59 billion euros (2.98 billion pounds), shy of the 3.88 billion pencilled in by analysts. Third-ranked Zurich's operating profit dropped 12 percent, with net income of $3.76 billion, boosted by one-off gains, also undershooting expectations.

Axa was hit by a bigger-than-expected 387 million euro writedown on its holdings of distressed Greek sovereign debt, while Zurich had to absorb $1 billion in claims after a spate of major natural disasters last year.

Sharp falls in the value of peripheral euro zone government bonds amid doubts over their issuers' creditworthiness and a near-record run of catastrophes led by Japan's Tohoku earthquake weighed heavily on Europe's insurers last year. Most are forecast to report weaker 2011 profits.

In challenging economic and financial market conditions, our group maintained its focus, Zurich Chairman Manfred Getz and CEO Martin Senn wrote in a letter to investors.

Axa shares were down 2.95 percent by 2:28 p.m., the steepest faller in the Stoxx 600 European insurance share index <.SXIP>, which was 1.2 percent lower. Zurich was off 0.86 percent.

Analysts said one bright spot was that both companies kept their dividends unchanged, easing concerns that capital pressures from weak financial markets, and, in Zurich's case, a strengthening Swiss franc, could force a cut.

It's an indication of confidence - in the end the management teams do feel comfortable with their capital positions, said Jean Francois Tremblay at RBC Capital Markets in London.

Zurich shored up its capital reserves by shedding 800 million euros of euro zone sovereign bonds deemed at greatest risk of default over the course of the year, reducing the total $10.9 billion.

Axa also trimmed its exposure to the riskiest euro zone sovereign debt, with its writedown on Greek bonds amounting to a 78 percent haircut on their value.

That surpasses a proposed voluntary writedown of 70 percent that Greece's private creditors may accept as part of a bailout deal for the debt-laden country.

Axa and Zurich both reported a stronger performance in motor and home insurance than in life insurance, where revenues fell 4 percent for Axa and 5 percent for Zurich.

Rock-bottom interest rates have forced life insurers to slash guaranteed returns on popular long-term savings policies, exposing them to stiff competition from banks keen to attract retail depositors amid a scarcity of wholesale funding.

Non-life insurers, in contrast, have benefited from a cyclical upturn in motor, home and commercial insurance prices as less well-financed players retrench, freeing those still in the market to charge more.

Axa and Zurich confirmed the trend, reporting an increase in non-life prices of 5 percent and 3 percent respectively.

($1 = 0.7654 euros)

(Reporting by Myles Neligan; additional reporting by Christian Plumb in Paris and Catherine Bosley in Zurich; Editing by Andrew Callus and Hans-Juergen Peters)