A Bermuda-based insurer and reinsurer has been downgraded by a ratings agency following the sale of its stake in another Island-based company.

Ratings experts AM Best has moved to reduce the issuer credit rating (ICR) of Tower Group International from b- to bb, which remains under review with a negative rating.

AM Best adjusted its view of the firm after it sold its minority share in insurance and reinsurance firm Canopius to majority shareholder Bregal Capital, a private equity firm.

Canopius was then taken over by Japanese firm Sompo, part of the huge NKSJ Holdings group, a top-three insurer in Japan.

AM Best also downgraded the financial strength rating of the pooled and reinsured members of the Tower US pool from B++ (good) to B (fair).

The $69.7 million paid to Tower for its share of 10.7 percent in Canopius was used to pay off a $70 million credit facility.

The ratings actions also factor in Tower’s announcement that it needs to further strengthen prior-year loss reserves in the third quarter in a range between $75-$105 million.

That followed a downgrading in Tower ratings in August from A- to B++ and cut the ICRs to bb from bbb.

AM Best said: “The downgrade to vulnerable rating status and the continuation of negative implications is necessitated by the group’s dimmed business and earnings prospects going forward and AM Best’s ongoing concerns around further adverse loss reserve development as its impact on future cash flows, liquidity and risk-adjusted capitalisation.”