Concerns about the company’s balance sheet strength have prompted AM Best to downgrade the credit ratings of Bermudian-based 777 Re Ltd.

The agency has downgraded the financial strength rating to B (Fair) from A- (Excellent) and the long-term issuer credit rating to “bb” (Fair) from “a-” (Excellent).

Concurrently, AM Best has placed these credit ratings under review with negative implications.

AM Best said the ratings reflect 777 Re Ltd’s balance sheet strength, which AM Best assesses as weak, as well as its adequate operating performance, neutral business profile and marginal enterprise risk management.

It added that the rating downgrades reflect the revision of 777 Re Ltd’s balance sheet strength assessment to weak from very strong, driven by the material decline in the company’s risk-adjusted capital ratio, as measured by Best’s capital adequacy ratio.

AM Best said this resulted from the company’s significant exposure to investments in various 777 Partners LLC originated assets resulting in higher risk charges.

It said these concerns are heightened by uncertainty regarding the financial condition of 777 Partners LLC as it has not provided audited financial statements for the past two years.

The rating downgrades also reflect the revision of 777 Re Ltd’s ERM assessment to marginal from appropriate, reflecting AM Best’s concern regarding the governance and risk management practices that led to the significant investment in affiliated assets.

The company has been placed under review with negative implications pending the completion of its plans to improve risk-adjusted capitalisation materially by divesting the majority of its affiliated holdings.

AM Best said additional negative rating actions could occur if the company is unable to execute on its plan to improve risk-adjusted capitalisation materially, if the quality of capital or assets deteriorates further, or if the company’s execution of its business plan leads to a deterioration in its prospective operating performance.