Rating Agency Cuts Reinsurer's Ratings

“The ratings were lowered reflecting our concerns that the group’s access to credit facilities is more limited than we had previously believed,” Neil Strauss, an S&P credit analyst, says in a statement. “It is our belief that without additional capital, the company is likely to be unable to satisfy future needs, including potential debt redemption in December 2006.”

One of Scottish Re’s major units, Scottish Annuity & Life Insurance Company (Cayman) Ltd., has been doing well, but terms of an existing credit facility restrict that unit’s ability to pay dividends to or make loans to the parent company, S&P says.

The restrictions should help make the liquidity position of Scottish Annuity & Life stronger than the liquidity position of the parent company, but Scottish Annuity & Life may have trouble writing new business until Scottish Re clears up its financial situation, S&P says.

“Standard & Poor’s continues to believe that there is substantial value in the underlying businesses in the operating companies, however, the franchise has been impaired by the continuing recurring disclosures of the operational issues at Scottish Re and the company will need to find funding sources to fund ongoing business,” S&P says.