Quanta Capital Holdings Ltd., a troubled Bermuda insurer in the midst of closing down its insurance and reinsurance units, yesterday saw its key financial strength rating cut for the second time this year, putting its credit facility in default.

The downgrade knocked Quanta?s financial strength rating, assigned by leading ratings firm A.M. Best, from ?B++? to ?B?. The two-notch cut also revised the rating firm?s view of the company from secure to vulnerable. Subsequently, on the request of Quanta management, the ratings were removed.

An unrated insurer has little hope of drawing much business. Quanta isn?t trying to gather clients though. A week ago the insurer, which had already lost a significant number of clients after an earlier ratings cut, announced plans to put its Bermuda, US and European units into run-off.

Quanta?s ratings? cuts yesterday didn?t affect two units that Quanta plans to keep open ? its Lloyd?s syndicate and environmental consulting firm, ESC. ESC wasn?t ever rated and Quanta?s Syndicate 4000 trades in the Lloyd?s ?A? rated market, said spokeswoman Sabrena Tufts.

Quanta is closing its insurance and reinsurance units after being financially battered by storm losses over the past two years. A.M. Best said part of its concerns related to Quanta?s remaining reinsurance business, and the potential for exposure to storm losses this year, in what is predicted to be another active hurricane season. Run-off is an industry term for an insurance company closed to new business.

A.M. Best last adjusted Quanta?s rating in March, downgrading the insurer from its ?A-? rating after it said fourth quarter losses were expected to be double earlier estimates. An insurer who sees its rating fall out of the ?A? range is generally hard put to attract clients.

Yesterday A.M. Best said its decision to downgrade the company was made after taking ?a conservative view in evaluating the group?s run-off?. Of concern were the potential for reserves, or the funds an insurer sets aside to cover possible claims on policies already sold, to have to increase, and the risks associated with dismantling an operation that spans the US, Bermuda and Europe, Best said. The company, as of an end of March count, had 318 employees, 100 of whom are consulting workers not affected in the run-off.

In addition to lowering Quanta?s financial strength rating, A.M. Best cut the issuer credit rating for parent company Quanta Capital Holdings Ltd. and on Quanta Reinsurance Ltd., Quanta Europe Ltd., Quanta Indemnity Company, Quanta Reinsurance US Ltd. and Quanta Specialty Lines Insurance Company.

A rating on preferred shares issued by the insurer was also cut as part of the downgrade.

The company?s shares, traded on the Nasdaq, advanced nine percent, or 21 cents yesterday, to $2.52. The shares first sold in a May 2004 initial public offering at $11.

Ms Tufts declined to comment on the status of Quanta?s Bermuda office, which is currently being maintained. Quanta hasn?t ruled out turning over its run-off process to a firm specialising in insurance closures, it said a week ago.

Quanta?s Victoria Street, Hamilton office was reduced in size earlier this year after it reached a sub-let agreement for part of the space.

And the company has said it is cutting staff but hasn?t specified the number of redundancies, or where those are taking place.

Under Quanta?s credit facility, the company has about $215 million in letters of credit issued. These are fully fully secured, it said.

However, under the default, Quanta is, among other things, prohibited from paying any dividends to its shareholders, including owners of its preferred shares.