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 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. Exceeding USD 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 is recognized as a Reciprocal Jurisdiction Reinsurer in 37 U.S. 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 favorable 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 programs 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, 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.

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