Lumen Re secures ‘A’ rating following switch to Class 3A reinsurer

15-12-2017

Lumen Re, a specialist Bermuda-based collateralised reinsurer formerly known as Collateralised Re, has secured a financial strength rating of A (Excellent) from AM Best. The outlook on the rating is stable.

The reinsurer, which upgraded its Bermuda license to a Class 3A reinsurer in 2017, predominately writes non-proportional, property catastrophe treaty reinsurance business with a group of re/insurance companies in highly developed markets.

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 rating reflects Lumen Re’s balance sheet strength, which it categorizes as strongest, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).

AM Best added that Lumen Re’s overall operating performance is assessed as adequate, based on its expected results over the near term. The company’s pricing strategy is to focus on underwriting profits and not on asset return. Investment income is projected to be minimal, which tracks its overall guidelines of having funds invested in short-duration, high-quality investments.

Lumen Re’s business profile is assessed as limited, since the company predominately writes non-proportional, property catastrophe treaty reinsurance business with well-established cedants in highly developed markets. Its line of business relates to low-frequency, high-severity insurance products with a well-diversified group of re/insurance companies and geographical spread of coverage despite reliance on a single insurance segment, the rating agency said.

Its product concentration is mitigated due to spread of coverage, number of cedants and the number of contracts contained in its portfolio.

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