A.M. Best has affirmed the financial strength rating of A (Excellent) and the long-term issuer credit rating of “a” (Excellent) of Lumen Re, based in Bermuda. The outlook of these credit ratings is stable. The ratings reflect Lumen Re’s balance sheet strength, which A.M. Best assesses as strongest, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM). A.M. Best states that Lumen Re’s risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio (BCAR), is at the strongest level. “Its liquidity, asset/liability management, quality of assets and use of internal capital models provide ample support of its balance sheet assessment,” A.M. Best adds. Partially offsetting these rating factors is Lumen Re’s relatively high dependence on third-party retrocession. However, A.M. Best notes that all retrocession will be written on a fully collateralised basis, which will minimise its exposure to losses and third-party credit risk. The company’s leverage, as measured by the ratio of retained limits to equity, is low. A.M. Best says Lumen Re’s overall operating performance is adequate based upon positive historical operating results and projected results in its business plan. The company’s pricing strategy is to focus on underwriting profits and not on asset return. Lumen Re’s business profile has been assessed as limited, as the company predominantly writes catastrophe excess of loss contracts and limited reinsurance protection programmes with well-established cedants in highly developed markets. A.M. Best explains: “Product concentration is mitigated somewhat by risk diversification across regions, perils and the number of cedants. Pricing sophistication, modelling capabilities including reliance on vendor models and independent modelling tools, and coverage exclusions for start-up companies create a strong environment for management to execute its pricing strategy.” A.M. Best assesses Lumen Re’s ERM as appropriate, based on the company’s robust ERM framework and governance that ensures a systematic and controlled process for the identification, monitoring and reporting of underwriting and investment risks, as well as other relevant risks that affect its reinsurance operations.
