The financial strength rating of Primary Insurance Company (PIC), the Dublin-based insurer for the Primary Group, has been downgraded to B from B++ by AM Best.
AM Best said the move reflected a "weakening" in the insurer's risk adjusted capitalisation.
This, it said, was due to deterioration in PIC's financial performance, caused partly by reserve strengthening in its commercial small to medium-sized account in 2006.
The rating agency warned that if no action were taken then a further downgrade was "likely".
AM Best said the insurer's performance had been affected by higher than anticipated reinsurance costs, further softening in rates for the insurer's main lines of business and high expenses caused by a reduction in the level of business written.
Earlier this year PIC's rating of B++ was put under review following what it described as "exceptional events" in 2005, which resulted in a need to strengthen the reserves for the group's rated insurer.
Philip James, chief executive of The Primary Group said: "We see this as a temporary rerating and will be working with AM Best to put in corrective actions in the coming months with a view of seeing PIC's rating improved."
The rating remains under review while AM Best assesses the impact of any corrective action to strengthen risk-adjusted capitalisation.