Bermuda-based reinsurer LaSalle Re Ltd. to single-A-minus from single-A.

And the agency also downgraded its counter-party credit rating on LaSalle Re Holdings Ltd. to triple-B from triple-B plus, while ranking the outlook for both entities as stable.

The holding company's preferred stock rating was lowered to double-B-plus from triple-B-minus.

The downgrade reflects lower expectations for LaSalle Re's operating profit and business review, partially offset by improved capital adequacy.

Standard & Poor's expected "return on revenue to decline from historical levels because of soft market conditions in catastrophe and non catastrophe lines, with return on equity targets declining to the ten to 15 percent range.

"Return on revenue is expected to be in the range of 18 percent to 25 percent for 1999 depending on the level of catastrophic activity,'' a statement from the agency said.

Of course less volatility was likely in reported results of non-catastrophe lines.

"Management's focus on shareholder return will lessen, demonstrated through a reduction in the dividend payout ratio and through prudent underwriting and growth targets.'' LaSalle management had significantly improved capital adequacy by quota share reinsurance with Continental Casualty Co. -- which is linked to a lead shareholder -- reducing retained risk without cutting market presence. But weak market conditions and high competition continued to "challenge LaSalle Re's ability to develop a broader market profile,'' the rating agency said.

It said after a catastrophe-driven operating loss in the fourth quarter 1998 and 1999, LaSalle Re unexpectedly announced $35 million of non-cat aggregate stop-loss, extended warranty and motor physical damage charges.

"LaSalle Re's access to the public capital markets is constrained because of declines in its common stock price, complicating and leading to the cancellation of a planned preferred stock issue. The duration of this limitation is uncertain.''