One of the Republic's biggest insurance brokerages, Marsh Ireland, has informed regulators of a €6.7 million hole in its accounts for 2003.

The massive write-off follows an internal review of its accounts over the past five years which found that a number of "balances" included in its annual returns had been substantially overstated.

The firm, which is part of the US insurance giant Marsh & McLennan said the discrepancy was discovered this year.

To recitify matters, the €6.7 million will be written down in its 2003 accounts which are due to be filed at the end of this month.

In a statement issued last night Marsh Ireland said the overstated figures were due to "internal accounting matters" and did not involve or impact any client or insurance market funds. A spokesman added that the large loss would not affect the firm's financial stability or its ability to trade.

Marsh Ireland specialises in providing risk and insurance services.

In 2002 the firm, which employs 450 staff in Ireland, reported profits of around €12 million and has premium income of €300 million.

The firm has expanded rapidly in Ireland, particularly in the mid to late 1990s when it acquired four brokers including Sedgwick Dineen.

Industry sources have suggested that this resulted in four different accounting systems existing which accounted for income received and other financial contributions in varying ways and may have contributed to the overstatement in successive annual returns.

The statement added that as part of the recent internal review Marsh Ireland has now introduced measures to strengthen its systems to prevent a "recurrence" of this situation. The company said that no individual had left Marsh Ireland as a result of the huge write-down. Its chief executive, Mr Joe Grogan, would not comment beyond the statement.

It is understood that the company has informed the Irish Financial Services Regulatory Authority (IFSRA) about the matter.

Its parent, Marsh & McLennan, is being sued for $800 million by New York Attorney General Mr Eliot Spitzer following an extensive probe for allegedly rigging quotes for insurance coverage. It is claimed to have solicited insurers to submit uncompetitive bids so it could funnel business to firms that paid it fees.

Mr Spitzer has strongly criticised the highest echelons of Marsh's management saying its senior executives are "not a leadership I will talk to" although he has not accused its chief executive, Mr Jeffrey Greenberg of orchestrating the scam.

Marsh shares have plummeted nearly 48 per cent since the lawsuit was filed last Thursday. Marsh & McLennan has said it will only have limited ability to borrow money for the rest of this year.

Marsh & McLennan has 42,000 employees worldwide and has annual revenues of $6.9 billion. The group also owns Putnam Investments and Mercer, which has operations in Ireland.