A.M. Best Co. has downgraded the financial strength rating of Bermuda-based Lehman Re to B (Fair) from A- (Excellent) and issuer credit rating to "bb" from "a-".

The outlook for both ratings is negative. Lehman Re is a wholly owned reinsurance subsidiary of Lehman Brothers Holding Inc., and the decision of Lehman Brothers to petition for Chapter 11 bankruptcy protection has prompted these rating actions.

While Lehman Re is not included in the bankruptcy petition, A.M. Best believes that the pending reorganisation of Lehman Brothers could have a significant adverse impact on Lehman Re.

A.M. Best had expected that the balance sheet of Lehman Brothers would be a source of capital for Lehman Re, if needed, and is also is concerned about the future of ongoing operating ties such as the securities activity between Lehman Re and other Lehman Brothers' affiliates, the administrative and investment management services provided to Lehman Re by other subsidiaries of Lehman Brothers and the inability of Lehman Brothers to refer potential insurance clients to Lehman Re.