Embattled insurer Centre Group was yesterday hit with more bad news after insurance ratings agency Moody's said it was lowering its insurance financial ratings and was keeping the ratings on review for a further possible downgrade.

Moody's said the reduction in the ratings from A1 to Aa3 came after parent company Zurich financial Services announced in December that Centre would be restructured, with its continuing operations becoming a business unit of Zurich Insurance Company's (ZIC) North America Corporate Division, which is ultimately owned by ZFS.

Moody's said the decision to place Centre directly under ZIC meant that it was less easy to identify Centre's credit strengths than it had been when it was reviewed as a stand-alone business unit.

"With new financial and management reporting relationships with ZIC in place, however, and with a more traditional underwriting focus, the lines between the operations of Centre and the operations of ZIC are now much less clear," Moody's said, adding it is also reviewing whether the rating downgrade could affect other securities, including structured financings.

"The continuing operations of Centre will focus solely on property & casualty finite risk insurance and reinsurance solutions for clients in North America, Bermuda, the United Kingdom and Continental Europe," Moody's said. "Beginning this year, the continuing operations of Centre will report to ZIC's North American Corporate Division as one of its major operating business units.

Moody's said that its continuing review will focus on Centre's role within ZFS going forward, the business position and prospects of its ongoing operations, the cash flow assumptions related to its portfolio, the management of its risk exposures related to the discontinued business, its capital adequacy and its capital management plans over the short to medium-term.

"... The ongoing support of ZIC and ZFS will be an important rating consideration for Centre going forward," Moody's said. "However, the lack of an explicit parental guarantee from ZIC will require the rating agency to continue to measure capital adequacy levels at Centre through a quantitative analysis of the group's expected cash flows and assets available to support its underwriting liabilities.

"Consequently, the capital adequacy of Centre on a stand-alone basis will continue to play a significant role in Moody's analysis of the group."