A life reinsurer says it is trying to increase its financial flexibility by dropping some financing arrangements.

Scottish Re Group Ltd., Hamilton, Bermuda, says it already has terminated letters of credit that had supplied $40 million in borrowing capacity for it and its affiliates.

Scottish Re also is looking for vehicles to refinance $43 million in debt outstanding on a $200 million line of credit so that it can terminate that line of credit, the company says.

Scottish Re reinsurance subsidiaries have large amounts of capital, but the parent company recently reported a large loss.

Scottish Re wants to shut down some of its letters of credit because letter terms restrict the company’s ability to shift cash from the reinsurance subsidiaries to the parent company.

Once alternative financing arrangements are in place and the $200 million credit facility shuts down, Scottish Re can make sure the parent company has the cash it needs to meet obligations to noteholders, the company says.

Canceling the current letters of credit may not have much effect on Scottish Re’s access to cash, because “the availability of further borrowings under these credit facilities has been uncertain,” Dean Miller, Scottish Re’s chief financial officer, says in a statement.

Scottish Re is the second biggest source of life reinsurance in the U.S. market.

Insurance analysts at Fox-Pitt, Kelton, New York, a company that was recently sold by Swiss Reinsurance Company, Zurich, say they think Scottish Re’s efforts to restructure its credit make sense.

“Based on our conversation with management, it appears that liquidity at the company is currently better than expected,” the analysts write in a comment on the efforts. “Most of these facilities were set to renew at the beginning of 2007, and [Scottish Re] management was uncomfortable with the terms being requested by its counterparties to renew the facilities.”

Scottish Re seems to be close to finding other sources of “intermediate-term liquidity” or surplus relief, the analysts write.