CHARLOTTE, N.C. – Hartford Financial Services Group Inc. said Monday it will receive a $2.5 billion investment from Allianz SE, a move which may foretell a possible acquisition.

The Hartford, Conn.-based insurer also predicted a steep third-quarter loss, and said it is cutting its dividend in conjunction with the investment by Allianz.

The news sent Hartford Financial shares up 3.50, or 12.8 percent, to $30.90. The company lost nearly $9 billion of market value last week as investors cut share price by more than half. Its stock is down 65 percent for the year.

Hartford said Allianz will purchase $750 million in preferred stock at $31 per share that is convertible to common stock. The German financial services firm will also purchase $1.75 billion of 10 percent junior subordinated debentures.

The investment increases the chance that Allianz may acquire all of Hartford Financial, a Citi Investment Research analyst said in a research report.

“Given the size of Hartford's in-force book combined with the slowdown in its recent business production, we have viewed it as ripe for acquisition, and this transaction increases the likelihood that Allianz may ultimately buy,” analyst Joshua Shanker wrote.

Hartford Financial also provided Allianz with warrants to purchase an additional $1.75 billion in common stock at a price of $25.32 per share. The warrants expire in seven years.

“This investment strengthens our ability to weather volatile markets and continue to invest and vigorously compete in our businesses,” Ramani Ayer, Hartford Financial's chairman and chief executive, said in a statement.

The investment comes as Hartford Financial expects to record a third-quarter loss of $8.50 to $8.80 per share, mostly due to losses in its investment portfolio.

The insurance and financial service firm expects to take realized capital losses ranging from $7.05 to $7.25 per share, or about $2.1 billion to $2.2 billion. About three-quarters of that charge is tied to investments in the financial services sector, which has been hit hard by the ongoing credit crisis.

“It's a big bet, but when the storm passes, Allianz will be firmly positioned to take advantage of one of the world's largest insurance markets,” said Catherine Stagg-Macey, a senior insurance analyst with Celent, a Boston-based financial research and consulting firm.

Hartford Financial's shares have tumbled in recent days on concerns about its exposure to collapsed companies, including Washington Mutual Inc., investment bank Lehman Brothers Holdings Inc. and rival insurer American International Group Inc.

Hartford Financial said it will also take a charge of $3.05 per share, or $915 million, related to the revision of its estimates of future gross profits, known as a DAC unlock.

Core earnings per share, which excludes the DAC unlock and investment losses, is expected to range from $1.50 to $1.60 per share, the company said in a statement.

Analysts surveyed by Thomson Reuters, on average, forecast earnings of 71 cents per share. Analysts' estimates do not always include special items. Hartford is expected to announce third-quarter earnings after the market closes on Oct. 29.

In conjunction with the investment by Allianz and the increase in outstanding shares, Hartford Financial said it will slash its quarterly dividend to 32 cents per share. The firm previously paid a dividend of 53 cents per share.

Separately, Hartford Financial also named Greg McGreevey as its new chief investment officer, effective immediately. He replaces Dave Znamierowski, who is leaving the firm.