Standard & Poor’s Ratings Services has lowered the ratings it has assigned to a life reinsurer.

S&P, New York, says it has lowered the counterparty crediting on Scottish Re Group Ltd., Hamilton, Bermuda, to CCC minus, and the counterparty credit and financial strength ratings on the Scottish Re operating companies to B minus, from BB.

S&P says it has lowered the ratings on the companies’ dependent unwrapped securitized deals by 4 notches.

Scottish Re has reduced its exposure to loss of reserve credits secured through XXX securitizations, but there still are concerns about the company’s exposure to investments in residential mortgage-backed securities investments, S&P analysts say.

“Because of the disclosure of a material weakness in their accounting controls and the pending revised application of accounting principles to its distressed assets Standard & Poor’s believes Scottish Re’s financial flexibility could be severely limited,” S&P says.

If Scottish Re did lose reserve credits, it would have to post collateral external to the XXX structures to reestablish the reserve credits, and the current investment market turmoil might affect Scottish Re’s ability to post the required capital, S&P says.

“The company’s weakened financial condition has also resulted in a discretionary payment default on its $125 million of 7.25% noncumulative perpetual preferred shares,” S&P says. “On April 14, 2008, the company also notified the holders of these shares that it might not pay the July dividend and may be precluded by the terms of the shares from declaring and paying dividends on the Oct. 15, 2008, dividend payment date.”