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FOR IMMEDIATE RELEASE
OLDWICK - MAY 15, 2020 12:42 PM (EDT)
AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” 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 categorizes as strongest, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
Lumen Re writes reinsurance and retrocession contracts with a focus on providing excess of loss property catastrophe reinsurance risk coverage to various ceding companies. According to Lumen Re’s business plan, a majority of its written reinsurance limits/exposures will be retroceded to third parties. All protection retroceded will be fully collateralized through a trust account for the benefit of Lumen Re. Assets within the trust account are invested in highly rated money market funds or short-term treasury bills. The remaining limits/exposures not retroceded will be retained and supported by the equity. The leverage, as measured by a ratio of retained limits to equity, is very low.
Based on its business plan shared with AM Best, Lumen Re’s risk-adjusted capital, as measured by the Best’s Capital Adequacy Ratio (BCAR), is projected to remain at the strongest level over the near term (i.e., one to three years). 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 dependency on third-party retrocession. However, all retrocession ceded limits will be written on a fully collateralized basis, thus dramatically minimizing its exposure to losses and third-party credit risk. Consequently, AM Best assesses the company’s overall balance sheet strength as strongest.
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. Its line of business is low frequency, high severity non-proportional treaty business with well-diversified primary insurance companies. Product concentration is mitigated somewhat by risk diversification across regions, perils and the number of cedants. Pricing sophistication, modeling capabilities including reliance on the use of vendor models, and coverage exclusions for start-up companies and those with unrealistic growth plans create a strong environment for management to execute its pricing strategy. The company’s innovation effort has direct and positive impact on the top line growth and bottom line results. Innovation is assessed as significant.
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. AM Best considers Lumen Re’s risk management capabilities to be aligned largely with its risk profile.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.