AM Best has affirmed the Financial Strength Rating of ‘A-’ (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Telefónica’s Luxembourg captive Nova Casiopea Re S.A. (NCRe).
NCRe operates as a single parent captive of Telefónica, a multinational broadband and telecommunications provider based in Spain with operations in Europe, as well as North, Central and South America.
NCRe was established in 2017, assuming the assets and liabilities of its predecessor captive Casiopea Re S.A.
It is common in Luxembourg for older captives to be closed as equalisation reserves accumulate over time, with and a second captive being formed in its place.
AM Best said NCRe benefits from Telefonica’s geographic diversification across Europe and Latin America.
NCRe maintains a broad portfolio mix, but as a pure captive its business profile remains constrained to Telefonica’s operations and strategic decisions.
NCRe generated a pre-tax profit of €11.3m compared with €21.3m in 2020, mainly driven by the captive’s net technical results, which reported a higher loss ratio of 38.6% compared with 21.4% in 2020.
The better net results in 2020 are mainly due to low frequency, low severity losses.
In 2021, the captive’s combined ratio was 72.0%, still below CRe’s historical five-year weighted average of 85.4% (2012-2016).
Recent changes to Telefónica’s business model have not materially affected the captive’s operations.
However, AM Best notes that potential spin-offs of Telefónica’s major businesses in Latin America will likely impact the captive’s risk exposure.