survival, according to Duff & Phelps Credit Rating Co. (DCR) as the agency downgraded the company's Australian and Bermudian subsidiaries.

The rating agency has lowered the claims paying ability of New Cap Reinsurance Corp. Ltd. (Australia) and New Cap Reinsurance Corp. (Bermuda) Ltd. to B from Triple-B-Plus, and revised its rating watch indication to uncertain from down.

"The rating action reflects DCR's belief that the financial viability of New Cap Re has come into question given high levels of adverse loss development experienced during 1998, and DCR's inability to gain comfort that additional development will not occur.'' The B rating is in the "vulnerable'' range and makes it difficult for the company to attract business. The downgrade follows a company announcement that it anticipated an operating loss of $90 million for 1998.

The underwriting activities at the Bermuda subsidiary were suspended by the company last week after total capital fell below the required regulatory level of $100 million, the minimum needed to remain licensed as a Class 4 insurer.

The Registrar of Companies has appointed an inspector to look into the company's affairs.

The Bermuda-based subsidiary has four employees based on the Island.

DCR stated that New Cap had "significant adverse'' development in 1997 and given 1998 was a poor year for catastrophe reinsurers, the agency saw the possibility for further losses on the company's book.

"The company faces considerable challenges in improving operating profitability and developing a viable reinsurance franchise over the longer term given an extended soft reinsurance pricing environment, and continued trends of consolidation in the reinsurance market,'' DCR stated. "The company is reducing its writings to approximately $60 million in 1999 in response to these market conditions.'' DCR also reported that New Cap Re is looking at options to take in improving its financial condition, including seeking a strategic partner.

New Cap was incorporated in Bermuda in 1996 and has shares traded on the Australian Stock Exchange.