* Three-notch cut to Generali
* Italy's largest insurers downgraded, outlook negative
* Unipol-Fonsai merger may add to downgrade risk-Moody's
By Philip Baillie
MILAN, July 17 (Reuters) - Moody's lowered the credit rating of three major Italian insurers on Tuesday, piling more pressure on the euro zone's third largest economy after a string of downgrades on Monday and a sovereign downgrade last week.
Italy's largest domestic insurer Generali Assicurazioni and its subsidiaries were lowered to Baa1, while Unipol Assicurazioni, and Allianz Spa had ratings cut by two notches each.
"The downgrade of Generali reflects the insurer's direct exposure to Italian sovereign risk in terms of both investment portfolio and business profile," Moody's said in a statement.
By the end of 2011, Italian government bonds represented 19 percent or 46 billion euros ($56.18 billion) of Generali's total fixed-income portfolio, or 253 percent of shareholders' equity, according to the statement.
Government bonds constituted 47 percent of the fixed income portfolio of Unipol Assicurazioni with 222 percent of shareholders' equity.
All the institutions mentioned in the statement were given negative outlooks.
On Monday, Moody's cut the credit ratings of a string of Italian banks, bringing the country's top lenders in line with a downgrade to Italy's sovereign rating on Friday, as well as lowering ratings for companies and local government authorities.
Italy has been a particular focus for ratings agencies in recent months as borrowing costs on 10-year bonds have risen to around 6 percent, and following bailout deals for fellow euro zone members Spain and Greece.
Moody's said Generali's rating could drop further following another downgrade to Italy's sovereign debt rating, a deterioration in the group's solvency or a weakening in its financial flexibility.
Unipol's proposed acquisition of Fondiaria-SAI could lead to a weakening of the group's capital strength the agency said, which would add to risks of a further downgrade. ($1 = 0.8188 euros) (Editing by Louise Ireland)