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Nova Casiopea Re (NCRe), a pure captive reinsurer of Spanish multinational broadband and telecommunications provider Telefonica, has had its financial strength rating of A- (Excellent) and its long-term issuer credit rating of “a-” affirmed by A.M. Best.
The outlook of the Luxembourg-based captive’s ratings is stable.
The ratings are a reflection of NCRe’s “very strong” balance sheet, in addition to its adequate operating performance, neutral business profile, and appropriate enterprise risk management.
NCRe began operating in 2017, replacing Casiopea Re (CRe) as the main reinsurance captive of Telefonica, which operates globally and is one of the largest telephone operators and mobile network providers in the world.
The captive also assumed the run-off liabilities of CRe.
In its first year of operation, NCRe’s management has successfully executed the transition and renewal of business, reporting gross written premiums of €57 million.
The captive is solely dependant on its parent for the generation of premium, as such, whilst diverse by line of business and geography, premiums volumes will remain constrained to the operations of Telefonica.
The operating performance assessment reflects the ratings agency’s expectation that NCRe’s prospective earnings will mirror the track record of CRe, which generated healthy` albeit fluctuating returns.
During its first year of operation, 2017, the captive generated a pre-tax profit of €5 million, with a combined ratio of 76.9 percent.
For year-end 2018, A.M. Best expects the company to deliver a combined ratio below 85 percent.
NCRe’s balance sheet strength is underpinned by the strongest level of risk-adjusted capitalisation and by an excellent level of liquidity managed through the captive’s conservation investment strategy.
Offsetting the rating factor partially is the level of natural catastrophe risk the company is exposed to, which is likely to cause volatility, however, NCRe maintains a highly rated retrocession panel to mitigate this risk.