By Andrew Verity BBC Personal Finance Reporter

Five British life insurers looking after the pensions, endowments and investments of more than eight million people have had their financial state branded "vulnerable" by a world authority on the industry.

I am perfectly confident we can manage the capital position in a way in which policyholders will not be disadvantaged

Paul Evans, UK finance director, Axa

The downgrades, by international ratings agency AM Best, reflect renewed concerns about the financial strength of the companies - and the impact of sustained falls on the stock market.

In the case of some of the companies, it is the second time they have been downgraded in the last three months.

The firms are: Pearl Assurance plc, Royal London Mutual Insurance Society, Sun Life Assurance Society, Winterthur Life UK Ltd and Britannic Assurance.

Pearl and Royal London had already been downgraded in August.

Cash crunch

The downgrades reflect concerns of further deterioration in the financial strength of these companies, largely because of continued pressures from the equity market slump, AM Best said.

AM Best, which has since 1899 specialised in rating insurers, rates companies for financial strength on a scale from A++ to D, taking into account all publicly available information.

An A++ rating means the company is in excellent financial health and can comfortably cover its liabilities, with enough spare capital in its coffers to cope easily with further falls on the stock market.

At B+, the company is still rated "secure", but if it slips to B, it is branded "vulnerable".

Pearl, Royal London, Sun Life and Britannic have all slipped from a rating of at least B+, to B, while Winterthur Life UK Ltd is now branded B-.

Jose Sanchez Crespo, the head of the analysts' team at AM Best, said the downgrades did not mean that the firms were in immediate danger of going bust.

"But there are issues as well as the stock market that are pushing these companies into the vulnerable category.

"We look, for example, at whether their capital position is affecting their ability to grow their business."

Market weakness

Because insurers put most of their money in shares, stock market falls have eaten away at their assets.

Once ample reserves have largely been gobbled up, leaving them with less spare capital than they have had for years.

That in turn can affect life insurers' ability to keep up payouts to customers when their endowment, pension or investment policies mature.

Most life insurers have already made cuts in the value of customers' policies by slashing the non-guaranteed element of their investments - the so-called "terminal bonus".

Some analysts anticipate further cuts.

Still confident

Some of the company directors defended their position, hitting back at AM Best for its downgrades.

Axa, the French-based insurance group, owns Sun Life Assurance Society, which has more than 500,000 customers with 'with-profits' pension, endowment and bond policies.

It was down-graded from B++ to B - a marked change.

Paul Evans, finance director of the Axa group in the UK, said it had recently taken steps to boost the financial strength of the Sun Life fund.

"I am perfectly confident we can manage the capital position in a way in which policyholders will not be disadvantaged," he said.

Royal London said it questioned AM Best's analysis and would be contacting the firm to query its rating.

Three other companies - Britannic, Winterthur, and AMP, which owns Pearl - declined to comment.