Credit rating agency AM Best Co yesterday downgraded the financial strength rating of insurer Argus Group Holdings Ltd for the second time in two years, citing a “significant decline” in the company’s capital position over the past two years.Argus chief executive officer Alison Hill said yesterday she was “surprised and disappointed” that the agency cut the firm’s financial strength rating (FSR) by one notch to B++ (good), from A- (excellent).Ms Hill said the rating change would have no operational impact on the company, which is also a pension provider and investment company.The FSR, according to AM Best’s website is “an independent opinion of an insurer’s financial strength and ability to meet its ongoing insurance policy and contract obligations”.The issuer credit ratings of Argus’s subsidiaries, Argus Insurance Company Ltd, Somers Isles Insurance Company Ltd, and Bermuda Life Insurance Company Ltd were also downgraded to “bbb” from “a-”.Argus was also downgraded by Best in July 2009, when the company’s financial strength rating was cut to A- from A.“The rating downgrades of the Argus Group and its subsidiaries reflect the significant decline in the capital positions of Bermuda Life and Argus Group over the last two years due to asset valuation write-downs mainly on Bermuda-based equity investments, and to a lesser degree, impairments of domestic commercial mortgages,” Best said in a statement yesterday.“The Bermuda domestic capital market continues to be pressured and significant appreciation of the value of Bermuda Life’s investment is not expected in the near term.”Bermuda Life’s investment in Butterfield Bank has plummeted in value, by more than 90 percent over the past three years. The investment formerly gave Argus a seven percent stake in the bank. Because of the dilutive effect of the issue of new shares to new investors last year, Bermuda Life’s 7.3 million Butterfield shares now amount to a stake of around 1.3 percent, Argus chief financial officer David Pugh said yesterday.Over the two financial years from April 2009 through to the end of March 2010, Argus posted combined net losses of $134.1 million. In the six months ended September 30, 2010, it showed signs of recovery with a $6.6 million profit.Argus’ struggles have shown up in shareholders’ equity, which had soared to $260 million in March 2008, and fell to $97.5 million by the end of March 2010. However, it rose to $107 million as of September 30 last year.Ms Hill said it appeared that AM Best made their decisions on the last audited accounts - the year through March 2010, accounts that were released on July 9 last year - as per the agency’s rating methodology. Therefore, no account was taken of the improvements in the capital position in the March through November period.“We are surprised at the approach adopted by Best and at the length of time it has taken for this rating to be published,” Ms Hill said yesterday.“Our last rating was A- with a negative outlook, so we were aware there was a possibility this could happen. We are disappointed with the rating change, but at the same time, they have upgraded our outlook to stable.“We are pleased that Best recognises our strong operating performance and still considers our financial strength rating to be secure.”She added that rating change would have no impact on day-to-day operations, the acquiring of reinsurance coverage or pricing of policies.Argus was still well capitalised she said and had capital “substantially over and above the statutory capital required” by regulator the Bermuda Monetary Authority for it to carry out its insurance operations, Ms Hill added.“Although the operating performance of Bermuda Life has improved, margins continued to be pressured due to the decline in investment income related to the low rate of return on both equity and fixed income invested assets,” AM Best added. “Additionally, Somers Isles’ operating margins are being pressured due to an increase in the medical loss ratio as a result of higher utilisation and medical cost inflation.“Within its property/casualty segment, Argus Insurance has recorded favourable underwriting and overall results in recent years and continues to maintain solid risk-adjusted capitalisation.“Offsetting rating factors include the Argus Group’s long standing participation in the domestic Bermuda insurance market, solid market share and improved operating results on both a consolidated and individual insurance company level.”Argus’ rocky period over the last two years included some exposure in its Argus International Life Bermuda Ltd unit to Bernard Madoff’s massive Ponzi scheme and a three-month voluntary suspension from Bermuda Stock Exchange trading last year. The suspension followed an administrative error involving a failure to give sufficient notice to shareholders of the company’s annual general meeting by its own bye-laws.Ms Hill replaced Gerald Simons as CEO at the start of this year, though Mr Simons remains company president.