Bermuda-based reinsurer New Castle Re's A- rating from AM Best has been placed under review as its hedge fund operator owner Citadel deals with redemption requests and dwindling assets.

Chicago-based Citadel has already closed down one Bermuda reinsurer, CIG Re, and last Friday took the unprecedented step of suspending investor redemptions from its Kensington and Wellington funds, which are down almost 50 percent on the year.

AM Best said the "under review status reflects the potential change in the business profile and the continued deterioration faced by their primary investors, Citadel Kensington Global Strategies Fund Ltd. and Citadel Wellington LLC".

The financial strength rating indicates the claims-paying ability of an insurer and a downgrade to below A- severely hampers its ability to write new business.

"As a result of the start-up nature of New Castle Re, any material deviation from the initial business plan could result in AM Best revising its ratings and/or outlook," AM Best said. "A review of the company's strategic options has been initiated, which could materially change the business and risk profile of New Castle Re.

"Management has confirmed that there are no encumbrances to the assets or capital of New Castle Re, which would inhibit its ability to pay policyholder claims contrary to published reports regarding the pledged assets of the reinsurance business of the funds," Best commented. "The conclusion of the under review status is contingent upon AM Best's review of the strategic option chosen by New Castle Re and its impact on the business profile of the company."

The Chicago Tribune reported that Citadel was trying to bolster its cash reserves by closing its Bermuda reinsurance business and had halted $1.2 billion in redemptions from the Kensington and Wellington funds.

According to the Tribune, Citadel keeps about 25 percent of the $13 billion it has under management in cash, a percentage that would drop if it honoured redemption requests. Citadel has to determine how it will respond to quarterly redemption requests due on February 15, adding pressure on Citadel to quickly steer its main funds back toward profitability in January.

New Castle's issuer credit rating of "a-" is also under review with negative implications.