LGT ILS Partners, the specialist dedicated insurance-linked securities (ILS) investments unit of the private bank and asset manager, has had the rating on its Class 3A reinsurance underwriting vehicle Lumen Re affirmed by AM Best.
LGT ILS Partners launched Lumen Re and received an AM Best rating of ‘A’ for the vehicle at the end of 2017, with the reinsurer providing the ILS investment management team a rated balance-sheet platform through which the majority of its reinsurance business is underwritten.
Lumen Re is used by LGT ILS Partners to underwrite a growing majority of its reinsurance business, combining the best of both world’s for the firm, offering a rated reinsurance company to front with the counterparties of the LGT ILS management business will holding onto the fully-collateralized vision of ILS.
The reinsurer provides LGT ILS with flexibility in how it transacts, the ability to offer traditional reinsurance contract features such as reinstatements and also makes the management of collateral simpler, particularly when it comes to rolling it over and dealing with the structural issues related to collateral retention by cedents.
A.M. Best said on Friday that it has affirmed Lumen Re Ltd’s Financial Strength Rating of A (Excellent) and Long-Term Issuer Credit Rating of “a”, both ratings having stable outlooks.
AM Best said that Lumen Re’s balance-sheet strength is considered “strongest” while its operating performance is deemed “adequate.”
A high dependence on third-party retrocession is cited, but “all retrocession will be written on a fully collateralized basis,” AM Best said, which the rating agency believes reduces Lumen Re’s exposure to losses and third-party credit risk.
AM Best also cited “positive historical operating results and projected results” in Lumen Re’s business plan, highlighting the important point that the reinsurers pricing strategy is focused on “underwriting profits and not on asset returns.”
While Lumen Re has a relatively limited business plan, due to the focus on originating and underwriting business for ILS funds under the management of LGT ILS Partners, which means writing “catastrophe excess of loss contracts and limited reinsurance protection programs with well-established cedants in highly developed markets,” AM Best also noted the diversification “across regions, perils and the number of cedants” that Lumen Re has achieved in its portfolio.
In addition, AM Best said Lumen Re has created a “strong environment for management to execute its pricing strategy,” and has a “robust ERM framework and governance” that helps in identifying and managing any other risks that may arise in doing its business.