Lumen Re maintains A rating amid strategic overhaul

Lumen Re maintains A rating amid strategic overhaul | Insurance Business America

Reinsurance

Lumen Re maintains A rating amid strategic overhaul

Rating reflects solid balance sheet and operational performance

Reinsurance

By
Mav Rodriguez

Bermudian-based commercial reinsurer Lumen Re has maintained its robust financial ratings following a comprehensive review by AM Best. The ratings agency affirmed Lumen Re’s Financial Strength Rating at “A” (Excellent) and its Long-Term Issuer Credit Rating at “A” (Excellent), both with a stable outlook.

Lumen Re operates under the aegis of LGT ILS Partners, the dedicated insurance-linked securities investments arm of the private bank and asset manager, LGT Capital Partners.

Its financial stability continues to impress, with AM Best affirming its top-tier balance sheet as among the strongest in the industry and acknowledging its satisfactory operational performance. The reinsurer’s adept handling of assets and liabilities, alongside its robust internal capital models, underscored its solid financial footing, it said.

Despite the inherent risks associated with its heavy reliance on third-party retrocession, Lumen Re has effectively shielded itself by fully collateralizing these agreements, thus sharply reducing its vulnerability to third-party credit risks and potential losses. The company’s cautious approach to leverage, evidenced by a low ratio of retained limits to equity, coupled with a significant increase in net written premiums, prompted an upgrade of its insurance license to Class 3B in 2023.

As of January 2024, Lumen Re has been recognized as a Reciprocal Jurisdiction Reinsurer in 37 US states, enhancing its operational efficiency and reducing cost burdens significantly across these areas.

AM Best has taken note of Lumen Re’s effective derisking and reunderwriting efforts, which have substantially lowered its loss ratio in recent years, pointing to a sustained improvement in operational performance going forward.

However, the reinsurer’s market reach remains somewhat narrow, focused primarily on writing catastrophe excess of loss contracts and specific reinsurance protection programs for well-established cedants in mature markets. Despite this specialization, Lumen Re manages risk exposure through a strategic mix of geographic and peril diversification and by engaging a varied pool of cedants.

AM Best has lauded Lumen Re’s enterprise risk management as effectively aligned with its operational goals, highlighting a comprehensive governance system that oversees, identifies, and reports on a spectrum of underwriting and investment risks integral to its reinsurance operations.