A Bermudian-domiciled commercial reinsurer sponsored by a private Swiss bank has been highlighted for its years-long derisking and reunderwriting process as its excellent financial strength ratings was affirmed by rating agency AM Best.

AM Best has affirmed Lumen Re’s Financial Strength Rating of A (Excellent) and its Long-Term Issuer Credit Rating of “a” (Excellent). The outlook of the ratings is stable.

Lumen Re is the reinsurance company of LGT ILS Partners, the specialist dedicated insurance-linked securities investments unit of the private bank and asset manager LGT Capital Partners.

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.

Lumen Re’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio, 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 high dependence on third-party retrocession. However, all retrocession will be written on a fully collateralised basis, thus minimising 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. Exceeding $50 million of net written premium in 2022, Lumen Re’s insurance license had to be upgraded to Class 3B in 2023.

In addition, as of January 2024, Lumen Re was recognised as a Reciprocal Jurisdiction Reinsurer in 37 US states, which will reduce operational burden and costs.

AM Best assesses Lumen Re’s overall operating performance as adequate. The company’s derisking and reunderwriting process continues to be having the intended effect as the loss ratio has come down significantly in 2022 and again in 2023.

Lumen Re’s operating performance is expected to remain favourable given current market conditions.

AM Best assesses Lumen Re’s business profile as limited, as the company predominantly writes catastrophe excess of loss contracts and limited reinsurance protection programmes 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, modelling capabilities including reliance on vendor models and independent modelling 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 enterprise risk management 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.