A.M. Best Affirms Financial Strength Rating of Scottish Re Limited; Assigns Issuer Credit Rating.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating (ICR) of "a-" of Scottish Re Limited (SRL) (United Kingdom). The outlook on both ratings remains stable.

The ratings reflect SRL's solid position in its traditional markets, as well as its importance to Scottish Re Group Limited, its ultimate parent, as evidenced by an explicit guarantee provided by Scottish Annuity & Life Insurance Company (Cayman) Ltd. (SALIC), an affiliate. Offsetting factors include a volatile operating performance and the changing risk profile.

Solid position in traditional markets but changing risk profile--SRL maintains a leading position in its traditional loss of aircrew license business in the Middle East, although the company is increasing its focus in the UK and Ireland, particularly through annuities and individual life business. A.M. Best expects the two regions mentioned above to account for about 60% of the company's premiums in 2005 and 2006, up from 35% in 2004, mainly due to new annuity business in the UK and Ireland.

Parental support mitigates potential pressures on risk-adjusted capitalisation--A.M. Best expects any further pressures stemming from SRL's rapid planned growth to continue being supported by regular capital injections from the Scottish Re Group and significant cessions to two of its affiliates, Scottish Re (Dublin) Limited and SALIC. In A.M. Best's opinion, the company's risk profile is likely to deteriorate given the lack of direct experience in the expanding UK annuity portfolio.

Volatile operating performance--Profits over the last two years have shown significant volatility, mainly due to the combined effect from strong business growth, reserving methodology changes and non-recurring expenses aimed at improving the company's administration systems. A.M. Best expects operating losses to continue for the next couple of years, albeit at a much lower level than those seen in 2004. Some exposure to further reserve adjustments remains given the ongoing changes in methodology and administration systems combined with the shift in product mix towards annuities.

Changes in senior management and strategic direction--A.M. Best believes that outstanding changes in senior management and business mix may negatively impact the risk management of the company until the strategic direction starts producing robust results. This is somewhat mitigated by the explicit parental support and the sharing of management expertise, whilst SRL provides the group with additional opportunities to develop its non-US business.

For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.