THREE FOREIGN-OWNED insurers have effectively been frozen out of the commercial State market as a result of the downgrading of Irish sovereign debt, according to the Irish Insurance Federation.

Allianz, Aviva and RSA Insurance have been downgraded by ratings agency Standard Poor’s in line with the State’s sovereign rating, a move that disqualifies them from providing cover for Irish State firms. While the three firms, which between them represent 40 per cent of the non-life insurance market, are foreign-owned, they have been capitalised in Ireland and write most of their business here.

Under SP’s rating criteria, an insurance subsidiary operating in any jurisdiction cannot have a higher rating than the sovereign rating. As a result, the companies no longer meet the minimum security rating – usually “A” – currently required to underwrite many Irish State and semi-State risks. The requirement comes under their individual governance codes and is not uniform across all State companies. The news comes on the back of Aviva’s announcement last week that it planned to lay off 950 of its 2,000-strong Irish workforce on the back of a major contraction in the Irish insurance market.

The Irish Insurance Federation has written to Minister for Finance Michael Noonan on behalf of the companies, pointing out that the downgrade was adversely affecting the competitive position of the companies.

In its letter, seen by The Irish Times, the federation said: “They [the companies] feel strongly that, being amongst the best capitalised companies in this market and meeting the solvency requirements of the Central Bank of Ireland, they should not be precluded from writing public sector business solely as a result of an indirect consequence of the downgrading of Ireland’s sovereign rating.”

It called on Mr Noonan to ensure the companies be allowed to compete on a “level playing-field” by requiring public sector entities to accept a minimum “BBB” rating from their insurers.

Earlier this month, Mr Noonan wrote back to the insurance lobby group, stating he was unaware of any code of practice or legislation in which the Government “specifies” the minimum acceptable insurance rate to public bodies.

In his letter, the Minister said he recognised Ireland’s downgrade had impacted the federation’s members and that this was “less than desirable”.

The lobby group’s chief executive, Michael Kemp, said yesterday that, despite there being no change to their financial position or capital strength, the insurers had been disqualified from going for semi-State business due to the downgrade which had been out of their control. Mr Kemp said the insurers told him they were losing business over the downgrade.

Acknowledging the Minister was not in a position to change the rules upon which semi-State companies underwrite risk, he said the federation was calling on Mr Noonan to intervene on an “advisory basis”.