Standard & Poor’s Ratings Services says it has lowered counterparty credit and financial strength ratings it has assigned to units of a life reinsurer.

S&P, New York, says it has cut the ratings on Scottish Annuity & Life Insurance Companies (Cayman) Ltd. and affiliated operating companies to CCC plus, from B minus.

Standard & Poor’s also lowered its ratings on the companies’ dependent unwrapped securitized deals by 1 notch.

The ratings on the parent holding company, Scottish Re Group Ltd., Hamilton, Bermuda, remains unchanged at CCC minus.

“The downgrade reflects the greater-than-expected deterioration in the group’s already severely limited financial flexibility and liquidity,” S&P credit analyst Robert Hafner says in a statement about the rating change. “This has resulted primarily from the higher-than-expected asset impairments leading to additional collateral posting requirements, as disclosed in the company’s recent 10-K filing.”

Scottish Re disclosed $972 million in investment impairments taken in 2007 and $752 million in additional impairments expected to be recognized in the first quarter of 2008, S&P says.

The “financials substantially reflect a mark-to-market write-down necessitated by the inability to assert the intent and ability to hold … securities to recovery of amortized value rather than projected losses,” S&P says. “Nonetheless, the uncertain economic value of these investments and associated impairments increase the stress on Scottish Re’s financial condition and degrades its liquidity, capitalization, and financial flexibility.”

Liquidity at the group fell to about $65 million as of June 30, from about $400 million at the end of 2007, S&P says.

Scottish Re managers say the pending sale of international and wealth-management operations should provide about $70 million in liquidity during the third quarter, S&P says.

“Although this might provide sufficient resources to meet liquidity needs for the next several months, unexpected developments — including further declines in the market value of investments — could exhaust liquidity resources sooner,” S&P says. “Scottish Re is taking multiple concurrent actions to maintain its liquidity, ensure statutory reserve credits are not lost, and preserve its solvency.”

S&P believes “that the only strong option available to [Scottish Re] for preserving longer-term solvency is the sale of its North American segment, which constitutes the bulk of its remaining operations,” S&P says. “Given its weak liquidity position, management indicates that if the group does not quickly find a buyer, it could be forced to seek bankruptcy protection relatively soon. Substantial incentives exist for the interested parties to reach a definitive agreement, which increases the likelihood the group will be successful in securing the sale of these operations before exhausting its liquidity.”