A.M. Best Downgrades Ratings of Scottish Re; Places Ratings under Review

Business Wire,  July 31, 2006  

Tags: A.M. Best Co.

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OLDWICK, N.J. -- A.M. Best Co. has downgraded the financial strength rating (FSR) to B++ (Very Good) from A- (Excellent) and the issuer credit ratings (ICR) to "bbb+" from "a-" of the primary operating insurance subsidiaries of Scottish Re Group Limited (Scottish Re) (Cayman Islands) (NYSE:SCT). A.M. Best has also downgraded the ICR of Scottish Re to "bb+" from "bbb-". All FSR and debt ratings have been placed under review with negative implications. (See below for a detailed list of the ratings.)

These rating actions follow Scottish Re's announcement today that it expects a second quarter loss of approximately $130 million when it reports earnings on August 3, 2006. A.M. Best is concerned about the magnitude of the loss and the potential for further deterioration in the company's operating performance. Moreover, A.M. Best has had concerns with Scottish Re's aggressive acquisition strategy, along with the impact on earnings from spread compression and higher lapses on interest sensitive products due to higher interest rates. Lastly, A.M. Best notes that the company's chief executive officer has resigned unexpectedly, and the company has engaged investment bankers to evaluate strategic alternatives and review capital sources.

A.M. Best will hold discussions with Scottish Re's management to analyze the drivers of the loss, implications for further adverse earnings developments, its liquidity needs and sources of funding and management succession and strategic plans. Following the completion of its analysis, A.M. Best will make a determination on what further rating actions may be appropriate.

The FSR has been downgraded to B++ (Very Good) from A- (Excellent) and the ICRs have been downgraded to "bbb+" from "a-" and placed under review with negative implications for the following subsidiaries of Scottish Re Group Limited:

--Scottish Annuity & Life Insurance Company (Cayman) Ltd.

--Scottish Re (U.S.), Inc.

--Scottish Re Life Corporation

--Scottish Re Limited

--Orkney Re, Inc.

The ICR has been downgraded to "bb+" from "bbb-" and placed under review with negative implications for Scottish Re Group Limited.

The following debt ratings have been downgraded and placed under review with negative implications:

Scottish Re Group Limited--

--"bb+" from "bbb-" on $115 million 4.5% senior unsecured convertible notes, due 2022

--"bb-" from "bb" on $143 million 5.875% of hybrid capital units, due 2007

--"bb-" from "bb" on $125 million non-cumulative preferred shares

Stingray Pass-thru Trust--

--"bbb+" from "a-" on $325 million senior unsecured pass-thru certificates, due 2012

The following indicative ratings for debt securities under the shelf registration have been downgraded and placed under review with negative implications:

Scottish Re Group Limited--

--"bb-" from "bb" on preferred stock

--"bb" from "bb+" on subordinated debt

--"bb+" from "bbb-" on senior unsecured debt

--Scottish Holdings Statutory Trust II and III--"bb" from "bb+" on preferred securities

For Best's Debt Ratings, all other 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.

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