Insurance ratings agency Standard & Poor's (S&P) has provoked a storm of protest by claiming thousands of motor policyholders belonging to three insurers could be at risk of having their cover cancelled.

S&P said it considered motor insurers Ansvar, Trafalgar and Folgate to have weak or marginal strength characteristics and has awarded them some of the lowest financial ratings in the insurance industry.

David Laxton, S&P director, warned that Ansvar now had the same financial rating, B (weak), as Drake prior to its collapse last May, which left 200,000 policyholders without cover.

Trafalgar and Folgate fare slightly better with a BB (marginal) rating, although this implies a “vulnerable level of security for policyholders”. In contrast, Direct Line has an A rating and Allianz is rated AAA.

S&P bases its ratings on the companies' published accounts and DTI regulatory data for 1999. However, it revealed it did not discuss its proposed findings with the insurers concerned.

Laxton went on to warn motorists generally to check their insurer's financial strength rating, as increasing competition in the insurance market is holding back much- needed premium rises.

“Our advice is to aim for a BBB (good) rating or above. Drake's rating is not a one-off.”

However, Laxton did not believe that the Drake scandal was likely to be repeated.

The insurers named by S&P have reacted angrily.

Graham Doswell, chairman of Ansvar, described S&P's claims that it had a history of poor earnings, weak insolvency and marginal reserves as “outrageous”.

He said: “This analysis is based on out-of-date information and was written without consulting the management of Ansvar.”

Doswell said that since Ansvar was acquired by Ecclesiastical in 1998, the parent group had strengthened Ansvar's reserves and steered the company towards profit.

He pointed out that S&P seemed to have overlooked the fact that Ansvar had only 4,800 motor policyholders and mainly dealt in household insurance.

Folgate also contested S&P's claims that it suffered from falling premiums and a weak business position, although mitigated by strong liquidity and solvency.

The insurer's gross written premiums have halved since 1997 to £58.3m in 1999, reports S&P.

Darryl Clark, deputy managing director of Folgate Insurance, said: “Folgate's solvency ratio remains one of the highest in the insurance industry and it is absurd to draw parallels with Drake Insurance. Similarly, Drake's motor loss ratios made for poor reading, whereas Folgate's are the best in the market.”

Mark Bishop, spokesman for Trafalgar Insurance, said: “To bracket Trafalgar with Drake is quite misleading.”

He said S&P had failed to mention that Trafalgar was a wholly-owned subsidiary of Cornhill, which is part of the triple A-rated Allianz group.

Bishop rejected S&P's analysis that Trafalgar had “very weak earnings, marginal solvency and liquidity only partially offset by adequate reserving” despite the insurer reporting a loss for the past three years of its published accounts.

He said: “As a sign of Cornhill's commitment to Trafalgar we injected £10m into the company last year.”