A.M. Best Co. said it has downgraded the financial strengthrating and issuer credit rating of Bermuda-based Lehman Re Limited,a wholly owned reinsurance subsidiary of financially embattledLehman Brothers Holding Inc. The outlook is negative.

A.M. Best lowered Lehman Re's FSR to "A-minus" from "A" and ICRto "a-minus" from "a," citing concerns about the "perceivedfinancial difficulties" of the reinsurer's parent company, LehmanBrothers.

The Oldwick, N.J.-based rating agency said, "Lehman Brothers hasexperienced a significant decline in its market capitalization, andA.M. Best believes that this rapid deterioration in investorconfidence generates uncertainty as to the ability of the parent toraise capital to support Lehman Re, if needed."

Best noted that the financial condition of Lehman Re is so farunaffected by challenges faced by Lehman Brothers.

However, the firm said, "While A.M. Best believes that LehmanRe's current stand-alone capital position adequately supports itsratings, the negative perception surrounding the parent company maypotentially impact Lehman Re's ability to attract and retainbusiness."

Best analyst Richard Baldwin said that a concern is that LehmanBrothers may no longer be able to provide capital to Lehman Re ifthe reinsurer needed it. He said Lehman Re's ratings have alwayscome with an understanding that it would enjoy support from LehmanBrothers if necessary.

But Mr. Baldwin cited Lehman Brothers' stock price as a signthat that may no longer be possible. "In our view, Lehman Brothershas probably lost the confidence of the market," he said, notingthat the stock price has dropped sharply over the last week andsignificantly over the past year.

Given the condition of Lehman Brothers, Mr. Baldwin said itcannot raise capital that it could then, in turn, transfer toLehman Re.