Rating agency AM Best has downgraded the financial strength rating of Bermuda-based LaSalle Re Limited despite its parent, the Trenwick Group entering in to a quota share reinsurance agreement with Endurance Specialty Ltd.

LaSalle's rating was downgraded to B++ (Very Good) from A- (Excellent) and AM Best also placed its financial strength and "bb" preferred stock ratings under review with negative implications.

AM Best said its rating actions followed Trenwick voluntarily placing some of LaSalle's operations into run-off. In addition, and effective April 1, 2002, LaSalle entered into a 100 percent quota share reinsurance agreement with Endurance Specialty Ltd. for LaSalle's in-force premiums.

Endurance also has acquired renewal rights to LaSalle's property catastrophe reinsurance contracts.

LaSalle's compensation includes a ceding commission and profit sharing agreement relating to the 2002 accident year business transferred to Endurance. Under this reinsurance structure, LaSalle retains outstanding policyholder liabilities relating to premiums earned prior to the effective date of the reinsurance agreement. AM Best expected the excess capital created at LaSalle as a result of this transaction would be used to pay down bank debt at Trenwick and back its continuing core businesses.

Although LaSalle's anticipated runoff margin appears adequate to meet current policyholder obligations, the under review status of the ratings reflect uncertainty with respect to its reserve position. LaSalle's ratings will remain under review pending AM Best's review of its reserve position and a stress scenario analysis related to the group's capital and liquidity margin subsequent to this strategic shift from a going concern to a run-off operation.

A.M Best has kept its negative outlook on the A- (Excellent) financial strength rating of Trenwick Group as A.M. Best works closely with the group's management to assess current capital structure and prospective earnings capacity.