Best affirms rating of Telefonica captive

MADRID, Spain—The A- financial strength rating of Telefonica S.A. captive Casiopea Re S.A. has been affirmed by A.M. Best Co.

The rating reflects the Luxembourg-based captive's risk-adjusted capitalization and strong operating performance despite its assumption of business written by a captive of O2 P.L.C., a U.K. mobile phone operator acquired by Madrid-based Telefonica in 2005.

Casiopea Re faces higher capital requirements to fund the increased exposure and a deterioration in its underwriting performance is expected this year as it assumes the new business, which is mostly property risks, Oldwick, N.J.-based Best noted in a statement.

The quality of Casiopea Re's capital of €225.1 million is partially offset by a loan to its parent and potential high dependence on retrocession if a large claim occurs, Best said. "However, this is alleviated by the high quality of retrocessionaires," the rating agency pointed out.