OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of Lumen Re Ltd. (Lumen Re) (Bermuda). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Lumen Re’s balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
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. Partially offsetting these rating factors is Lumen Re’s relatively high dependence on third-party retrocession. However, all retrocession will be written on a fully collateralized basis, thus minimizing 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.
AM Best assesses Lumen Re’s overall operating performance as 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 returns.
AM Best assesses Lumen Re’s business profile as limited, as the company predominantly writes catastrophe excess of loss contracts and limited reinsurance protection programs with well-established cedants in highly developed markets. Product concentration is mitigated somewhat by risk diversification across regions, perils and the number of cedants. Pricing sophistication, modeling capabilities including reliance on vendor models and independent modeling tools, and coverage exclusions for start-up companies create a strong environment for management to execute its pricing strategy.
AM 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.
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