Bermuda-based Associated Electric & Gas Insurance Services Ltd. (AEGIS) has seen its financial strength ratings downgraded to A- (excellent) from A (excellent) and issuer credit rating to "a-" from "a" by AM Best Co.

Both ratings have been removed from under review with negative implications and assigned a stable outlook.

These rating actions are due in part to the unexpected large decline in the company's surplus at the end of last year, compared to year-end December 31, 2007.

The ratings were placed under review with negative implications last month, following a significant decline in AEGIS' total capital at year-end 2008 due to a reported net loss that included significant investment related realised losses and impairment charges, which produced a $323.4 million or 30 percent erosion in policyholders' surplus in 2008.

The rating downgrades were the result of AEGIS' weakened capitalisation in 2008 and a deteriorating trend in its operating performance, said Best.

In determining the company's overall risk-adjusted capitalisation, the ratings agency considered a significant level of capital relief derived from the loss reserve adverse development contract provided by National Indemnity Co. covering workers' compensation, excess casualty, pollution and directors and officers portfolios in force at December 31, 2008.