A.M. Best has assigned a Financial Strength Rating of A (Excellent) and a Long-Term Issuer Credit Rating of “a” to Lumen Re Ltd. (Lumen Re) (Bermuda). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect Lumen Re’s balance sheet strength, which A.M. Best categorizes as strongest, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
Lumen Re, formerly known as Collateralised Re Ltd., upgraded its Bermuda license to a Class 3A reinsurer in 2017. Lumen Re predominately writes non-proportional, property catastrophe treaty reinsurance business with a well-diversified group of (re)insurance companies in highly developed markets. According to Lumen Re’s business plan, a majority of its written reinsurance exposures will be ceded to third parties. The ceded business will be fully collateralized with funds deposited in a trust account for the benefit of Lumen Re. Assets in the trust account will be invested in highly rated fixed income instruments.
Lumen Re’s balance sheet strength is assessed as strongest. Based on the business plan shared with A.M. Best, Lumen Re’s risk-adjusted capital, as measured by the Best’s Capital Adequacy Ratio (BCAR), is projected to be at the strongest level over the near term (i.e., one to three years). The company’s liquidity, asset/liability management, quality of assets and use of internal capital models provide support of its balance sheet assessment.
Lumen Re’s overall operating performance is assessed as adequate, based on its expected results over the near term. The company’s pricing strategy is to focus on underwriting profits and not on asset return. Investment income is projected to be minimal, which tracks its overall guidelines of having funds invested in short-duration, high-quality investments.
Lumen Re’s business profile is assessed as limited, since the company predominately writes non-proportional, property catastrophe treaty reinsurance business with well-established cedants in highly developed markets. Its line of business relates to low-frequency, high-severity insurance products with a well-diversified group of (re)insurance companies and geographical spread of coverage despite reliance on a single insurance segment. Product concentration is mitigated due to spread of coverage, number of cedants and the number of contracts contained in its portfolio.
Lumen Re’s ERM is assessed as appropriate, based on the company’s projected size and risk profile, which is supported by its focus on maintaining geographic and its risk exposure diversification. A.M. Best considers Lumen Re’s risk management capabilities to be aligned appropriately with its risk profile.
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