AM Best has affirmed the financial strength rating of ‘A-‘ (excellent) and the long-term issuer credit rating of “a-” (excellent) of Luxembourg-domiciled Nova Casiopea Re S.A. (NCRe). The outlook for the ratings is stable.
NCRe is a single parent captive owned by multinational broadband and telecommunications provider, Telefónica, S.A.
The company is based in Spain with operations in Europe and across the Americas, with the captive benefitting from Telefonica’s geographic diversification.
The captive has a broad portfolio mix, but as a pure captive its business profile remains constrained to Telefonica’s operations and strategic decisions.
Recent changes to Telefónica’s business model have not materially impacted the captive’s operations, but AM Best noted that potential spin-offs of Telefónica’s major businesses in Latin America will likely impact the captive’s profile, reducing its natural catastrophe exposure, among other impacts.
In 2023, NCRe restructured its reinsurance programmes and further increased some of its net exposures in response to hardening reinsurance market conditions.
NCRe’s balance sheet strength assessment is underpinned by the strongest level of risk-adjusted capitalisation, on both a standard and catastrophe-stressed basis, as measured by AM Best’s capital adequacy ratio (BCAR).
This assessment is supported by NCRe’s “conservative and liquid” investment portfolio, as well as capital buffers in the form of equalisation reserves.
An offsetting factor is the company’s exposure to natural catastrophe risk, which has the potential to introduce volatility to capitalisation levels.
In 2022, NCRe generated a pre-tax profit of €5.9m compared with €12.4m in 2021, with the reduction being driven by a year-on-year increase in the loss ratio to 69.7% in 2022, from 38.6% in 2021.
Overall, in 2022, NCRe’s combined ratio stood at 89.4%, well above its five-year weighted average combined ratio of 70.4% (2018-2022).