LGT ILS Partners, the insurance and reinsurance linked securities investments unit of the private bank and asset manager, has renamed its fully collateralised reinsurer to Lumen Re Ltd. and achieved an A.M. Best rating of ‘A’ for the vehicle.
LGT ILS Partners reinsurance vehicle was previously named Collateralised Re Ltd., but LGT opted to upgrade the Bermuda license for the reinsurer to a Class 3A in 2017 and has renamed the company in the process, to Lumen Re Ltd.
LGT has also had the reinsurance vehicle rated by A.M. Best, achieving a Financial Strength Rating of A (Excellent) and a Long-Term Issuer Credit Rating of “a”, both with stable outlooks.
In rating Lumen Re, A.M. Best noted the reinsurers balance sheet strength, which it deems ‘strongest’, said its operating performance was adequate, noted its limited business profile and praised the appropriate enterprise risk management (ERM) measures used.
Through Lumen Re, the LGT ILS team mostly underwrite non-proportional, property catastrophe treaty reinsurance business, with counterparties being a well-diversified group of re/insurers from highly developed markets, A.M. Best said.
The Lumen Re business plan shows that most of the reinsurance exposures underwritten will be ceded to third parties, which reflects the fact the reinsurer underwrites on behalf of LGT’s range of ILS funds.
All of the underwritten and ceded business will be fully-collateralized, using trust accounts established for the benefit of Lumen Re and with assets used to back the risks being highly rated fixed income instruments.
A.M. Best said that, “Lumen Re’s risk-adjusted capital, as measured by the Best’s Capital Adequacy Ratio (BCAR), is projected to be at the strongest level over the near term.”
The reinsurer will be focused on generating adequate underwriting return, this being an ILS underwriting and fully collateralized strategy where investment return is not of as much importance on the asset side.
Lumen Re also has a focus narrowly on property catastrophe risks, given the LGT ILS fund strategies focus, but A.M. Best notes that importantly it looks to maintain geographic and risk exposure diversification.
With the collateral held centrally by the rated reinsurer, Lumen Re, the establishment of this reinsurer will make collateralized reinsurance simpler, as it removes the requirement for a separate collateral solution for each cedent or transaction, reducing some of the complexity.
For the LGT ILS Partners team, having a rated reinsurance company will serve to enhance its access to underwriting business, given some cedents may only be able to utilise a rated reinsurer, especially in some foreign markets.
It will allow LGT to expand the reach of its collateralized reinsurance products, bringing in a broader spread of the underwriting market to the benefit of its ILS funds and their investors.
LGT is not the first ILS fund manager to have a rated reinsurer but certainly among the first to achieve an ‘A’ rating for a fully collateralized underwrting strategy.
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