Telefonica captive's A- rating affirmed

Nova Casiopea Re, the single parent captive of Spanish telecommunications provide Telefonica, has had its A- financial strength rating affirmed by ratings agency AM Best. 

Best assessed Luxembourg-based NCRe's balance sheet strength as very strong and noted its adequate operating performance, neutral business profile and appropriate enterprise risk management and said its outlook was stable. 

"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 in North, Central and South America," AM Best said. "NCRe benefits from Telefónica’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 Telefónica’s operations and strategic decisions."

It added: "The adequate operating performance assessment reflects the captive’s good, albeit fluctuating underwriting results since inception. In 2022, NCRe generated a pre-tax profit of EUR 5.9 million compared with EUR 12.4 million in 2021. The reduction was driven by a year-on-year increase in the loss ratio to 69.7% in 2022, from 38.6% in 2021, as a result of incurred severity claims. 

"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)."

AM Best said 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, reflecting the captive’s strategic importance to the group as a cost-effective risk management tool," AM Best said.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.