New Castle Re — one of the “class of 2005” reinsurance companies set up to take advantage of a hardening market following Hurricane Katrina — yesterday received an “excellent” financial strength rating from A.M. Best.

The affirmation of the A- rating is good news for New Castle, which Best says has adhered to its initial business plan and has strengthened management and staff with experienced personnel.

Best also gave New Castle an issuer credit rating (ICR) of “a-” and commented that the outlook for all ratings is stable.

Best says its ratings reflect New Castle Re’s solid capitalisation, continued enhancement of its infrastructure, in particular its risk and contract recording systems, as well as the execution of its business plans.

And the rating agency said New Castle had illustrated its ability to meet A.M. Best’s stricter risk-based capital requirements for property catastrophe companies. These more stringent requirements require a more conservative level of risk-based capital to support a company’s assigned rating. Additionally, New Castle Re’s risk-based capital is further enhanced by a financial guaranty provided by its sponsor, the Citadel Investment Group, which is one of the largest hedge funds in its industry.

First-year premium volume was in line with expectations and risk-based capital fully supportive of the company’s current rating level, Best added.

The agency anticipates that New Castle Re will continue to be challenged by increased competition from established companies, sidecars and potential new start-ups seeking to enter the industry. The additional capacity brought to the market could dampen expected returns if pricing of reinsurance coverage fails to meet anticipated levels.