Allied World Assurance Company Ltd. and its subsidiaries saw their financial strength rating downgraded one notch to ?A? yesterday on A.M. Best?s concerns about the Bermuda-based company?s capital plan and its independence from its original sponsor.

In taking the action, the ratings agency noted that as AWAC transitions from its original sponsor American International Group it will see a reduced level of strategic benefits.

AWAC is developing its own support systems and US distribution platforms independent of AIG and as such will terminate business agreements with AIG and its affiliates, which originally provided access to US distribution and other services.

?These strategic benefits, which originally provided access to underwriting expertise, US distribution channels and certain support functions, resulted in AWAC?s enhanced entry into the market and were significant considerations in providing AWAC with a rating lift into the Superior range,? Best said adding that while it believes that AWAC?s transition will be successful, ?it does present a level of execution risk until fully completed?.

The ratings downgrade also reflects AWAC?s anticipated capital action which is projected to return AWAC to its pre-2005 hurricane season risk-based capital level.

The plan is also expected to include additional forms of capital not currently held by the company or its parent, Allied World Assurance Holdings Ltd.

?This change in capital structure will require additional levels of future earnings to be allocated to the capital costs,? Best noted adding that it believes that AWAC will continue to produce excellent operating results through its prudent underwriting strategy.

Once the capital action plan is completed in early 2006, Best said risk-based capital is expected to be fully supportive of AWAC?s new rating status.

However, the ratings will remain under review with negative implications pending the successful completion of AWAC?s capital plan.