Bermuda-based Scottish Re Group Ltd.'s main subsidiaries have had their financial strength rating (FSR) downgraded to C- (weak) from C+ (marginal) and issuer credit ratings (ICR) to "cc" from "b-" by AM Best Co. over concerns its financial position and liquidity have deteriorated since the last review.

Concurrently, Best has downgraded the ICR of most of Scottish Re's debt ratings to "c" from "cc".

All ratings have been removed from under review with negative implications and assigned a negative outlook.

The company's recently filed 10-K indicated severely strained liquidity and a further weakening in its capital position, while the rating downgrades also reflect Best's concerns with the ongoing pricing, volatility, valuation and default risk in the mortgage-backed securities market, which have resulted in a substantial negative impact on Scottish Re's consolidated balance sheet.

In its year-end 2007 10-K filing, Scottish Re reported significant impairments to its sub-prime and Alt-A asset portfolio valued at roughly $780 million, with an additional first quarter 2008 impairment estimated of about $752 million. The company indicated that a large portion of the impairment charges were in two of its three securitisation structures, Ballantyne Re plc. and Orkney Re II plc.

At year-end 2007, reserves at Scottish Re (US) Inc. were required to be strengthened by $208 million, which adversely impacted the group's liquidity position. Best notes that the recently completed sale of its life reinsurance international (UK) segment affords additional short-term liquidity but believes that Scottish Re's liquidity position continues to be strained.