US ratings agency A.M. Best Co. has affirmed the financial strength rating of A (excellent) of the reinsurance subsidiaries of Inter-Ocean Holdings Ltd., a Bermuda reinsurer.

The rating applies to Inter-Ocean Reinsurance Company Ltd. (Bermuda) and Inter-Ocean Reinsurance (Ireland) Ltd.

The outlook has been revised to negative from stable.

The rating reflects the group?s strong risk-adjusted capitalisation, non-risk retaining operating structure and the support it receives through its strategic relationships with its sponsoring shareholders who are made up of recognised leaders in the insurance and reinsurance industries.

?Offsetting these strengths is A.M. Best?s view that the risk-adjusted capital position of the group has been diminished over the last two years as its credit exposures continue to accumulate, and the credit ratings of some its most active retrocessionaires have been lowered,? said the report.

It added that Inter-Ocean benefits from its relationships with its shareholders who maintain a strong level of expertise in the global insurance and reinsurance markets and are responsible for originating most of Inter-Ocean?s business.

It said one of these shareholders ultimately assumes any underwriting or timing risk undertaken for each reinsurance transaction and under this operating structure Inter-Ocean maintains a minimum amount of equity ? $69 million at September, 2003 ? which is fractional when compared with the gross amount of risks that passes through the group, said Best.

Inter-Ocean Reinsurance (Ireland) Ltd. continues to be afforded its rating based on its core importance within the group.

However, to sustain this rating, Best said it expects Inter-Ocean to maintain capital within this entity at a level commensurate with its rating .

Best said it believes that Inter-Ocean will continue to benefit from its strategic importance to its shareholders and through its ability to provide tailored products to meet the coverage requirements of both cedants and retrocessionaires.

?The negative rating outlook reflects A.M. Best?s concern that at its current rating level, the group?s relatively modest level of shareholders? equity will not be adequate to support further increases in its credit exposure or rating downgrades of its principal retrocessionaires,? it said.