Cornhill has been downgraded to AA- from AA by Standard & Poor's which cited its weakened operating performance and decline in business position.
The rating agency blamed the insurer's expansion in the soft commercial lines market during 1998 and early 1999.
"A sharp increase in loss severity and frequency pushed the combined ratio up to 112.8%," the report states.
"Although not out of line with its competitors, this is significantly out of line with its historic performance.
"Adverse trading results in the company's international division, exacerbated by adverse reserve run-off, will prevent a recovery in operating performance in 2000."
The rating agency added that the gap between Cornhill, the fifth-biggest general insurer, and the top four had widened and that its management had adopted a more aggressive approach in commercial lines.
But Standard & Poor's said these factors were mitigated by the con- tinuing strength and support of Cornhill's parent company, Allianz.
Cornhill spokesman Geoff Mayhew said the firm had suffered in the international market along with other competitors but that it had implemented measures to improve the underwriting performance.