A Bermuda insurance company which insures attorney?s liability has had its ratings downgraded because its lines of business are too limited ? despite doing well.

Standard & Poor?s ratings services lowered the counterparty credit and financial strength ratings of Attorneys? Liability Assurance Society (Bermuda) Ltd. (ALAS) and Attorneys? Liability Assurance Society Inc. Risk Retention Group to ?AA minus? from ?AA?.

The ratings agency said it was ?reflecting a re-evaluation of US professional liability insurance risk trends and ALAS?s business position as a monoline writer in that industry sector?.

But the highly regarded ratings agency said that the outlook for ALAS was stable and did not post any negative implications on the company.

?The rating considers a very strong, specialised, and solidly performing niche business, supported by extremely strong capital adequacy, conservative underwriting, and unparalleled client focus,? said Standard & Poor?s.

?Offsetting these positives are high reinsurance reliance, a narrow business position, and increasing claims trends.?

The ratings agency said that although ALAS continued to improve its operating performance, it remained a narrowly focused franchise with heavy reinsurance reliance and high levels of recoverables.

Standard & Poor?s said it believes that these limiting factors are offset by management?s ability to navigate difficult market conditions and said that ALAS clients are also expected to renew at higher 2004 premium levels.

Standard & Poor?s said that ALAS had a strong management team that was heavily staffed by experienced attorneys who joined ALAS following long and successful careers in the partnership ranks of law firms.

And it said that management?s focus on its niche business and ?unique training and skills? were a competitive advantage for ALAS. It went on to say in its report that ALAS had extremely strong capital adequacy ? as of May 31, 2003, was at the ?AAA? level at 229 percent, consistent with past levels and up from 181 percent as of November 30, 2002, through the growth in capital from unrealised investment appreciation and earnings year-to-date.

It also praised ALAS? conservative underwriting and prudent levels of retained risk, stating it underwrites its members before admissions based on a minimum ten-year loss history.

Standard & Poor?s also cited a strong business franchise, consistent profitability, narrowly focused business position and high reinsurance reliance as positive factors. It added that a reduction in the capacity available to it might adversely affect the core coverage it offers to policyholders and increases in reinsurance costs predate coverage renewals and are incorporated into ALAS renewal rates as necessary.

The report said that as with many other professional liability writers, ALAS was experiencing negative trends in severity though claims frequency seems to be stable.