Bermudian insurer and reinsurer Alea has been plunged into crisis by the downgrade of its financial strength rating to BBB+ from A-.

The downgrade throws the company?s future into doubt. One option would be for Alea to find a buyer but in the wake of Hurricane Katrina, analysts do not think there will be much interest in the company.

?We cannot see any trade buyer that would want to invest in Alea at this stage,? says Richard Gradidge, analyst at investment bank Numis Securities. ?Everything has changed so much as a result of Katrina,? he said. ?Companies will want to direct investment into their own underwriting capabilities and take advantage of improved rates rather than buy a company like Alea that has legacy problems.?

Alea was planning a $210 million rights issue to shore up its capital but the downgrade could make capital raising difficult for the company.

?Right now, due to the downgrade happening so recently, the board and the management team are reviewing all strategic options for the company,? Mark Ricciardelli, chief executive of Alea, told Reactions on Friday when asked about whether the rights issue would proceed.

S&P says Alea?s poor operating performance and disappointing first half results are largely to blame for the downgrade - not just its capitalisation. ?Capitalisation is not the main issue,? S&P credit analyst Simon Marshall told Reactions before the downgrade. ?Of more concern to us is the management credibility and operating performance of the company.?

Alea posted a $25.9 million profit for the first half of 2005, a 47 percent decrease on the same period last year. The decrease was partly caused by a $34.7 million charge to boost its reserves. This also hit its combined ratio, which jumped to 101.9 percent compared with 95.8 percent in the same period last year.

Rating agency AM Best also has the company?s A- financial strength rating under review with negative implications. Its main concern is Alea?s level of capitalisation.

The uncertainty surrounding the company?s future will be a big worry for Alea?s cedants ? those who have bought reinsurance policies from the Bermuda company. ?The management and board will continue to communicate with its employees, customers and shareholders. The management team has been and will continue to address the issues that the company may have,? Mr. Ricciardelli said.

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