Bermuda-based insurer and reinsurer Alea Group Holdings' share price yesterday took a hit after its financial strength came under scrutiny from insurance rating agency A.M. Best.

Separately, Alea was also drawn into a US regulatory probe of insurance policies under the spotlight for their potential to be misused for income smoothing purposes.

In trading yesterday on the London Stock Exchange, Alea shares fell 18.94 percent, or 35 pence, to 150 pence a share.

Shareholders pushed down the value of Alea shares after it said its financial strength and issuer credit ratings were being reviewed by Best because of capital adequacy concerns.

Alea also said it had received its third subpoena, this time from the US Securities and Exchange Commission (SEC) as part of a wide regulatory probe of insurers' and reinsurers' use of finite risk policies.

Alea had previously been subpoenaed last year by New York Attorney General Eliot Spitzer as part of an investigation of insurer/broker dealings and in April by Florida insurance regulators seeking information on finite risk transactions from a total of 17 reinsurers.

Alea currently holds a financial strength rating of A- (Excellent) and issuer credit rating of A- from A.M. Best with these now under 'review with negative implications' indicating a downgrade is possible if a capital injection is not made to shore up reserves.

Some brokers may decline to sell Alea's reinsurance if its rating falls, Neil Manser, an analyst at Fox-Pitt, Kelton in London, told Bloomberg News.

"Being downgraded is very bad news for a reinsurer," Manser said. "A BBB rating means it can lose as much as 50 percent of its premiums."

Alea may raise capital in the third quarter, Manser said, after talking with company officials.

Alea said it was "in discussions" with A.M. Best after they "indicated that it will require the company to significantly increase its capital to maintain its rating," the company said in a statement.

Chief executive Mark L. Ricciardelli said: "We are disappointed with AM Best's decision. Nonetheless, Alea is considering the most appropriate and expedient method for addressing AM Best's concerns and to maintaining its ratings, which would include raising additional capital, the exact form of which we will begin discussing with our financial advisors."

On the regulatory front, Alea's subpoena from the SEC asked for documents relating to certain non-traditional, or loss mitigation, insurance products, the company said.

Alea both sells and buys loss-mitigation policies, otherwise known as finite risk reinsurance.

Alea senior vice-president for marketing and communications Keith Anderson told The Royal Gazette that the subpoena from the SEC "appears to be similar to those received by a rather large number of insurers".

When asked if the subpoena related to Alea's business with finite risk company Inter-Ocean Reinsurance, a Bermuda reinsurer that recently went into run off, Mr. Anderson said it was a "general" subpoena and that Inter-Ocean was not mentioned in the subpoena.

Alea said it intends to fully cooperate with the investigation.