Relations between one of Britain's biggest brokers and one of Europe's largest insurers have been cut following a bitter row.

Zurich has cancelled Folgate's commercial agency amid allegations that the insurer plans to use other brokers to attack Folgate's business. Zurich's personal lines agency with Folgate is unaffected.

An industry source said the row started when Zurich demanded that Folgate increase the amount of commercial business it placed with the insurer. It is understood that Zurich's Folgate account is worth up to £20m of premium income.

But Folgate refused the demand as it was growing increasingly unhappy with Zurich's practice of writing to small businesses asking them to place their business direct with the insurer (as revealed by Insurance Times, 3 June 2004).

The two companies reached an agreement to end their relationship, but the source said the situation soured last week. "Zurich contacted several regional brokers and asked them to help the insurer attack Folgate's business," the source said.

Zurich UK Commercial head of market management David Smith confirmed that Zurich would be "exiting the arrangement with Folgate via run-off".

He said that as of 1 September, Zurich would not write any new commercial business or renew existing commercial business from Folgate.

Smith added that the personal lines business transacted between the two would not be affected. He would not comment on the allegation that Zurich planned to try to retain the Folgate business using other brokers.

Smith said the decision to cancel the agency was due to "a lack of alignment of the two business models". He added that local and national relationships between the two businesses were good.

Folgate chief executive Andy Homer said: "I can't really comment on Zurich's actions except to say that we think that they are unprecedented. In view of the alleged approach to other brokers to attack our clients, we are in touch with our lawyers and I'm seeking urgent talks with Biba."