Business now better capitalised thanks to O2 handsets business

AM Best has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of “a-” of Casiopea Re (Luxembourg), the reinsurance captive of Telefónica S.A. (Telefónica) (Spain). The outlook on both ratings is stable.

The ratings reflect Casiopea Re’s excellent current and prospective risk-adjusted capitalisation, strong operating performance and improving business diversification.

AM Best believes that Casiopea Re’s business portfolio is better diversified with the integration of the O2 handsets portfolio, which accounted for a significant proportion of total gross written premiums in 2007, although the material damage and business interruption book was still dominant. Geographically, the business spread also improved and the main markets are now the United Kingdom, Spain and Central and South America.

AM Best believes that Casiopea Re’s risk-adjusted capitalisation is likely to remain excellent over the next two years, driven by the expected continuous retention of profits in the form of equalisation reserves and retained earnings. The impact of the considerable increase in net written premiums in 2007 following the O2 business portfolio transfer has been moderate.

AM Best expects Casiopea Re’s operating performance to be strong and improving to the range of €30-34m (US$60-68m), compared to €26.5m (US$53m) in 2007. AM Best forecasts the return on equity to be very good and within 10%-12% (10.6% in 2007) and return on premium to be excellent and at approximately 30% (36% in 2007).