Ratings agency Standard & Poor?s yesterday lowered its financial strength rating of Bermuda-based energy industry mutual Oil Casualty Insurance Ltd.?s to BBB+ from A-.

Business Insurance reported yesterday that the downgrade stems partly from S&P?s concern over the business model of Hamilton, Bermuda-based OCIL, which ?relies highly on reinsurance and focuses on a single line of business within a relatively narrow industry sector,? Laline Carvalho, a credit analyst and director at New York-based S&P, said in a statement.

OCIL ? part of the OIL Group of Companies ? was founded in 1986 to provide excess liability insurance to energy companies and reinsurance to energy captive insurance companies.

Ms Carvalho said S&P considers OCIL?s policy limits ?relatively high in view of its relatively small net premium base and annual earnings power?, and noted that ?the high excess nature of the policies it offers inherently exposes OCIL to significant volatility in its balance sheet and income statement?.

OCIL requires that its 76 shareholder members purchase an umbrella general liability policy that provides a minimum of $25 million in limits, while the maximum limit under the policy is $150 million.

The company reported a loss of $36.4 million for the first nine months of 2006, compared with a profit of $17.3 million in the prior-year period.

?We?re disappointed in their announcement and their decision,? said Jerry Rivers, OCIL?s senior vice president and chief operating officer.

?The items that they mentioned as a concern would not seem to overweigh the positive attributes of strong capital, strong reinsurance and a loyal membership base.?

Robert D. Stauffer, president and chief executive officer of OCIL, said the company is ?getting confirmations back from many of our shareholders that there will be no change in their loyalty?.

Typically, companies will not place insurance with companies that have a rating below A-.

However, because OCIL is a mutual insurer and is owned by its policyholders, it may be that they have greater confidence in remaining with the company.