AM Best Affirms Credit Ratings of Lumen Re Ltd.
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 capitalization, 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. Increased losses from peak and secondary peril events in 2021 has led the company to begin a de-risking and re-underwriting process to improve contract terms and raise attachments in order to prevent outsized loss experiences going forward. 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 diversificaion 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.
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 use of Best's Credit Ratings, Best's Performance Assessments, Best's Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best's Ratings & Assessments.
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 London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
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