The credit rating of Eagle Star, the insurance company owned by tobacco giant BAT, was dramatically cut last night by Moody's Investors Service in the latest episode of a crisis that has hit the industry over profit fears.
The rating change, from A2 to A3, places Eagle Star at the bottom of the category normally considered "good".
Embarrassingly for the insurer, Moody's hinted yesterday that the grading might have been even lower but for the support it receives from BAT, its parent, itself rated A2.
Rafael Villarreal, senior analyst at Moody's, said the action followed Eagle Star's relatively poor performance in the general insurance sector at a potentially good time in the cycle.
He said: "This was long overdue. Eagle Star has not benefited from the upturn. We will be waiting to see how it performs over the next two years."
Eagle Star said: "We are disappointed but note that it seems that other companies have been downgraded and we are not alone. We believe we have a range of competitive products that will help us through the downturn."
Standard & Poor's also said yesterday that it was bringing forward reviews of a number of insurers, with possible downgradings of previous assessments for several firms in the sector.
Among those already considered vulnerable by S&P are Clerical Medical, downgraded this week from AA- to A+, and Scottish Provident, which was moved down from A+ to AA.
The downgrading comes after Norwich Union, the UK's second-largest mutual insurer, had its financial strength rating reduced by Standard & Poor's in October.
Standard Life, the large Scottish mutual, and Pearl, owned by the Australian insurance giant AMP, last year both retained their AAA ratings.
In Pearl's case, this came after reference was made to the fact that, while it faced the same problems as the rest of the industry, its parent was financially sound.
S&P said growing competition and falling premium income on the life and pensions side, coupled with the savage effect of direct insurance on general business, were likely to have a downward effect on several companies.