Fitch Ratings yesterday affirmed the 'A' insurer financial strength ratings of Scottish Re's operating subsidiaries, the 'A-' issuer default rating and the ratings on all outstanding debt.

Fitch said the rating outlook is stable.

Ratings strengths of the Bermuda-based company which engages in the reinsurance of life insurance, annuities and annuity-type products through its operating subsidiaries include its sound capitalisation, experienced management, disciplined underwriting and conservative investments, Fitch said in its ratings assessment.

It also noted that SCT had solidified its competitive positioning and improved risk diversification through its integration of ING America Insurance Holdings, Inc.'s individual life reinsurance business.

"Improved operating margins can ultimately be expected as SCT leverages its corporate infrastructure capabilities and continues to grow the business," Fitch said.

Fitch also favourably views SCT's use of securitisations and reserve credit trusts rather than letters of credit for collateral funding.

Negatives include SCT's reliance on the capital markets to fund internal growth and acquisitions, its brief operating history, challenges associated with rapid growth and successive acquisitions and a dependence on the continuing availability of affordable retrocession as a risk and capital management tool. With a limited track record, Fitch said SCT's operating results have thus far developed in line with management's strategy and are moderate as compared to its ratings expectations.

"Mortality experience, the primary driver of earnings in the traditional solutions segment, continues to be favourable overall with some fluctuation over shorter periods. SCT continues to demonstrate pricing discipline, but Fitch believes its mortality results on newly written business could be susceptible to greater volatility than more established competitors," Fitch said.