LGT ILS Partners' Lumen Re gets Excellent rating for second year

Lumen Re, the specialist Bermuda-based collateralised reinsurer formerly known as Collateralised Re, and vehicle for LGT ILS Partners, has had its financial strength rating of A (Excellent) affirmed by AM Best for a second year.

The reinsurer had upgraded its Bermuda licenses to a Class 3A reinsurer in 2017, and writers reinsurance and retrocession contracts (e.g. industry-loss warranties, excess of loss) 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 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.

AM Best said the ratings reflect Lumen Re's balance sheet strength, which is categorised as strongest, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM). The outlook of the ratings is stable.

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 provides ample support of its balance sheet assessment, AM Best noted.

The rating factors are partially offset by Lumen Re’s relatively high dependency on third-party retrocession, however all retrocession ceded limits will be written on a fully-collateralised basis, therefore substantially minimising its exposure to losses and third party credit risk.

AM Best has assessed Lumen Re's business profile as limited, as it  predominantly writes catastrophe excess of loss contracts and limited reinsurance protection programmes with well-established cedants in highly developed markets.

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 diversity of its risk exposures, AM Best said.