On a more positive note, SCOR said that before the reserving action its global business in 2002-2003 is profitable. For the first nine months of 2003, for these two underwriting years, the company reported a net combined ratio of 96.

SCOR said the additional reserves are mainly non-core classes, where activity has been halted or sharply reduced, such as "buffer layers," program business and workers' compensation. "The factors behind these runaway costs are primarily due to medical cost inflation, particular in some states like California."

An early plan to divest the company of its life reinsurance subsidiary has been scrapped, SCOR said, explaining that bids received "for the sale of this subsidiary do not fully reflect the value of this business, which represents a source of stable and recurring revenues for the Group."

SCOR said it nevertheless plans to proceed with the transfer of its life reinsurance activities to this newly formed subsidiary in order to bolster its development.

As for the plans for the loss-making Commercial Risk Partners subsidiary, SCOR said negotiations are currently under way to commute a large portion of CRP's book.

"A first commutation, concerning approximately 20 percent of the Bermuda-based subsidiary was completed in July 2003, underwriting having been halted with effect from January 2003," SCOR said. "In light of the actuarial reviews carried out, the Group has increased CRP's reserves at Sept. 30 2003 by 49 million euros to meet best estimates reserving."

In response to these revelations, the ratings agencies promptly responded negatively.

A.M. Best said it changed the under-review status of the Paris-based SCOR's financial strength rating of "B-double-plus" to negative from developing. This also applies to the company's core subsidiaries.

A.M. Best said the proposed rights issue will likely to restore SCOR's prospective consolidated capital to a level commensurate with a "B-double-plus" rating, despite a substantial expected net loss in the region of 300 million euros ($342 million) for the full year (as a result of underwriting losses and reserve strengthening).

This prospective positive impact on capital "will be somewhat offset by reduced financial flexibility," A.M. Best said.

In addition, commutation negotiations at CRP have proven more protracted than anticipated, while negotiations remain open, A.M. Best said.

The rating agency is also reviewing the potential for further reserve deterioration. A significant delay or unsuccessful completion of the rights issue will most likely trigger a downgrade, A.M. Best said.

Standard & Poor's Ratings Services lowered its long-term ratings (including counterparty credit and insurer financial strength) on SCOR and its subsidiaries to "triple-B-minus" from "triple-B-plus."

SCOR's losses, which stem almost exclusively from the group's North American operations for underwriting years 1997-2001, "are significantly higher" than those expected by S&P, said credit analyst Marcus Rivaldi.

S&P said the rights issue has the "explicit and strong support of major shareholders," which are pledging more than 50 percent of the amount to be raised. Further support has come from two banks, which provided "a conditional commitment in principle to underwrite the balance of any rights above the amount committed by shareholders," S&P said.

"Should the rights issue be fully and unconditionally underwritten and the group retain the support of its key cedents and brokers, Standard & Poor's may promptly raise its long-term ratings on SCOR and related entities, although not higher than ?triple-B-plus'," said Mr. Rivaldi.

In the event that this improvement to the balance sheet does not materialize, S&P said it may lower the ratings from the "triple-B" range.

In other ratings actions, Moody's Investors Service announced it placed SCOR's ratings of Baa2 on review for possible downgrade, while Fitch Ratings placed SCOR Group's "triple-B" insurer financial strength on rating watch negative.