A.M. Best Downgrades Ratings of Scottish Re Group Limited; Ratings Remain Under Review.OLDWICK, N.J. -- A.M. Best Co. has downgraded the financial strength rating (FSR (Free System Resource) In Windows 3.x, the amount of unused memory in various 64K blocks reserved for managing current applications. Every open window takes some space in this area. See Windows memory limitation. ) to C+ (Marginal) from B- (Fair) and issuer credit ratings (ICR (Intelligent Character Recognition or Image Character Recognition) The machine recognition of hand-printed characters as well as machine printing that is difficult to recognize. ) to "b-" from "bb-" of the primary operating insurance subsidiaries of Scottish Re Group Limited (Scottish Re) (Cayman Islands) [Other OTC OTC See: Over-the-counter. OTC See over-the-counter market (OTC). : SKRRF.PK]. Concurrently, A.M. Best has downgraded the ICR to "cc" from "ccc+" and the various debt ratings of Scottish Re. The ratings remain under review with negative implications. Scottish Re Limited's (London, England) ratings are unchanged; however, the ratings remain under review and the implications have been revised to developing from negative. (See below for a detailed listing of the companies and ratings.) Subsequent to the April 11, 2008 rating downgrades, A.M. Best is still concerned with a continued lack of clarity with respect to Scottish Re's financial strength position, underpinned by its ongoing inability to publicly disclose reliable market values of certain assets within various special purpose vehicles (SPV SPV sheeppox virus. ). Moreover, Scottish Re's third quarter 2007 10Q has been deemed unreliable as noted in its May 2008 8-K, and has postponed the filing of its 2007 Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. , which A.M. Best believes primarily is due to Scottish Re's inability to complete the evaluation of mark-to-market valuations and other than temporary impairments in the carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. of its available for sale securities. The continued volatility associated with the mortgage-backed securities Mortgage-backed securities (MSBs) Securities backed by a pool of mortgage loans. market is expected to result in additional delinquencies and losses, increasing uncertainty surrounding the ultimate impact of investment write-downs on Scottish Re, its subsidiaries and SPVs such as Ballantyne Re plc (Ballantyne), which could result in an additional negative impact on Scottish Re's consolidated balance sheet consolidated balance sheet A balance sheet in which assets and liabilities of a parent company and its controlled subsidiaries are combined, thereby presenting balance sheet items for the parent and its subsidiaries as if they were a single firm. , triggering possible default on its debt and/or possible insurance department regulatory intervention. The downgrades also reflect the continued uncertainty as to the effectiveness of the remediation actions put in place to mitigate the company's disclosed material weakness in its internal control over financial reporting as of September 30, 2007. A.M. Best favorably views the recent announcement that Pacific LifeCorp, the parent company of Pacific Life Insurance Company (both of Newport, CA), will purchase Scottish Re Limited. Scottish Re had previously announced plans to pursue the disposition of non-core business lines such as its international operations. While a definitive price for the acquisition will be determined based upon various valuation concerns and contractual obligations, the added liquidity to Scottish Re may offer it some additional, albeit limited, financial flexibility. A.M. Best notes that Scottish Re remains heavily dependent upon off-shore securitizations to provide collateral support for its Regulation XXX reserves. Scottish Re previously announced a binding letter of intent with ING America Insurance Holdings Inc. (ING) and its affiliates, in which a pro-rata portion of business ceded to Ballantyne would be recaptured. The transaction would allow Scottish Re (U.S.) Inc. to continue to receive full NAIC NAIC See National Association of Investors Corporation (NAIC). reserve credit for insurance business ceded to Ballantyne. Erosion in the value of the large position in subprime and Alt-A loans held by Ballantyne would further deplete de·plete v. 1. To use up something, such as a nutrient. 2. To empty something out, as the body of electrolytes. the capital held within this structure. As further deficiency develops, Scottish Re's operating subsidiaries may be required to pledge additional assets to secure reserve credit outside of the securitization structure. A.M. Best believes Scottish Re would face significant challenges in raising additional capital or securing letters of credit at this time. The ratings will remain under review while A.M. Best gets further clarity on the performance of the company's subprime and Alt-A mortgage-backed portfolios and assesses the impact of the ING transaction and the revised strategy on Scottish Re's balance sheet. In addition, A.M. Best will monitor the disposition of Scottish Re Limited and its overall impact to the financial strength of Scottish Re. The FSR has been downgraded to C+ (Marginal) from B- (Fair) and ICRs to "b-" from "bb-" for the following primary operating subsidiaries of Scottish Re Group Limited: * Scottish Annuity & Life Insurance Company (Cayman) Ltd. * Scottish Re (U.S.), Inc. * Scottish Re Life Corporation * Orkney Re, Inc. The ICR has been downgraded to "cc" from "ccc+" for Scottish Re Group Limited. The following debt ratings have been downgraded: Scottish Re Group Limited-- -- to "d" from "ccc-" on $125 million non-cumulative preferred shares Preferred shares Preferred shares give investors a fixed dividend from the company's earnings and entitle them to be paid before common shareholders. See: Preferred stock. Stingray stingray: see ray. stingray or whip-tailed ray Any of various species (family Dasyatidae) of rays noted for their slender, whiplike tail with barbed, usually venomous spines. Pass-Though Trust-- -- to "b-" from "bb-" on $325 million 5.902% senior secured pass-through certificates, due 2012 The following indicative ratings have been downgraded: Scottish Re Group Limited-- -- to "cc" from "ccc+" on senior unsecured debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. -- to "cc" from "ccc" on subordinated debt Subordinated Debt A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known as "junior security" or "subordinated loan". -- to "c" from "ccc-" on preferred stock -- Scottish Holdings Statutory Trust II and III-- -- to "c" from "ccc" on preferred securities Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com. |
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