Fitch Ratings has "rubbished" claims that rating agencies are forcing insurers to diversify their business.

The agency has insisted that the perception of insurers was incorrect and warned companies against entering into unknown classes of business.

Fitch managing director Greg Carter, told Insurance Times. "It seems that the emerging feeling picked up by people in the market is that rating agencies are encouraging diversification.

"[Agencies] want to stress, however, that we do see risks in diversification as well as recognising the benefits of careful, managed and controlled diversification."

Chris Hitchings, a European insurance analyst at Keefe, Bruyette & Woods, warned that remodelling portfolios was "not always a good thing".

He said diversification increased control costs and led companies to expand into areas just because they were uncorrelated with the existing business.

The benefits of diversification have been thrown into the spotlight by Europe-wide changes to the capital requirements of insurers through the Solvency II Directive.

Chris Waterman, senior director within the insurance division of Fitch, said: "A diversified book of business has less capital requirements to support it than a conc-entrated book of business."