Fitch Ratings has assigned a ‘BBB-' rating to Bermuda-based Scottish Re Group Ltd.'s (Scottish Re) issuance of $115 million of Hybrid Capital Units (mandatorily convertible preferred stock).

At the same time, Fitch has affirmed all existing ratings on Scottish Re and its subsidiaries. The Rating Outlook is Stable.

Fitch expects that proceeds from the debt issuance will be used for general corporate purposes, including investments in or advances to Scottish Re's insurance company subsidiaries, possible acquisitions, working capital and other corporate purposes.

Fitch expects Scottish Re to manage financial leverage below 25 percent on an equity-adjusted basis. Following the proposed issuance, which has significant equity characteristics, Scottish Re's financial leverage remains below 20 percent. Fitch expects earnings-based interest coverage in 2004 in the 6-7 times range.

Fitch's ratings of Scottish Re and its subsidiaries are based on the strength of the group's sound capitalisation and liquidity, experienced management team, disciplined underwriting and conservative investment strategy. SCT has also made very good progress strengthening its competitive position in the life reinsurance market in line with Fitch's expectations. Fitch's primary rating concerns relate to the group's limited operating history and scale.

A significant portion of the capital within the organisation is held in wholly-owned subsidiary Scottish Annuity and Life Insurance Company (Cayman) SALIC, the flagship operating company, which is subject to Cayman Island Insurance Law. Given the relatively modest regulatory capital requirements, SALIC's capital is highly fungible and available to support growth throughout the organisation to meet regulatory capital requirements, collateral and liquidity needs. The ratings of Scottish Re (US) and Scottish Re Limited (UK), two other major operating insurance companies within the group, are based to a large extent on explicit capital support agreements with SALIC and Scottish Re.

Scottish Re was incorporated in May 1998 and completed its initial public offering in November 1998. In October 2001, it relocated its corporate and headquarters from the Cayman Islands to Bermuda.