AMSTERDAM--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Nova Casiopea Re S.A. (NCRe) (Luxembourg). The outlook of these Credit Ratings (ratings) remains stable.
The ratings reflect NCRe’s balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
NCRe is a pure captive reinsurer of Telefonica, S.A. (Telefonica), a Spanish multinational broadband and telecommunications provider with operations in Europe, and North, Central and South America. NCRe began operations in 2017, replacing Casiopea Re S.A. (CRe) as Telefonica’s main reinsurance captive. Concurrently, NCRe assumed the run-off liabilities of CRe. NCRe is solely dependent on Telefonica for the generation of premiums, as such, whilst diverse by line of business and geography, premium volumes will remain constrained to the operations of Telefonica.
NCRe’s balance sheet strength is underpinned by the strongest level of risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR). The balance sheet strength assessment is supported by NCRe’s conservative and appropriate liquid investment portfolio, as well as capital buffers in the form of equalisation reserves. A partially offsetting rating factor is the level of natural catastrophe risk the company is exposed to, which has the potential to introduce balance sheet volatility.
NCRe’s operating performance assessment reflects AM Best’s expectation that NCRe’s prospective earnings will mirror the track record of the captive’s predecessor (CRe), which generated healthy albeit fluctuating returns. In 2018, NCRe generated a pre-tax profit of EUR 14.5 million, underpinned by a robust combined ratio of 63.5%, reflecting an improvement compared with the prior year (2017: 76.9%). The recent announcement of Telefonica’s new business model will not impact the captive’s performance immediately. However, AM Best acknowledges that a potential spin-off on the Latin America business will likely impact the captive’s risk exposure.
AM Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated throughout the world. For current Best’s Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.
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