Bermuda-based Tokio Millennium Re Ltd.'s financial strength rating was yesterday downgraded from A++ to A+ by ratings agency A.M. Best.

But the agency changed the company's outlook to stable from negative.

A.M. Best also assigned an issuer credit rating of "aa-" with a stable outlook.

The downgrade of TMR's rating is based on "a revised application of insurance group methodology", the agency said, adding: "The ratings reflect (Tokio's) strategic importance to its parent company, its very strong capital position, good operating performance and established niche market position.

"The company's stand-alone risk-adjusted capital position is supported by conservative underwriting practices, investment strategies and risk management techniques. Offsetting factors are the increasingly competitive reinsurance pricing environment and the volatile nature of the catastrophe reinsurance business."

The stable outlook on both ratings reflects TMR's position within the A+ (Superior) category, "which includes strategic lift from the parent", Best said.