Moody's Investors Service announced yesterday that it had lowered the debt and financial strength ratings of Bermuda's Trenwick Group Ltd. and its rated subsidiaries senior debt to Ba3 from Ba2, and the ratings remain on review for further possible downgrade.

In its rationale for downgrade, Moody's said Trenwick's operational leverage had increased significantly as a result of increasing loss reserves and reinsurance recoverables during 2002.

While Moody's expects firming conditions in the reinsurance market to improve the company's future earnings, the extent of expected improvement may not be sufficient to address the level of increased balance sheet risk over the medium term. Moody's also cited a number of operating challenges for the group.