LGT’s Lumen Re rating affirmed. AM Best notes de-risking & re-underwriting

Rating agency AM Best has highlighted the ongoing de-risking and re-underwriting process being undertaken by Class 3A Bermuda based reinsurer Lumen Re, which is the main reinsurance underwriting vehicle of LGT ILS Partners, the specialist dedicated insurance-linked securities (ILS) investments unit of the private bank and asset manager.

A.M. Best has again affirmed Lumen Re Ltd’s Financial Strength Rating of A (Excellent) and Long-Term Issuer Credit Rating of “a”, saying that both ratings continue to have stable outlooks.

LGT ILS Partners launched Lumen Re as a rated reinsurance company at the end of 2017, with the reinsurer providing the ILS investment management team a balance-sheet platform through which the majority of its reinsurance business is underwritten.

Lumen Re is used by LGT ILS Partners to underwrite the 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 while holding onto the fully-collateralized vision of ILS.

AM Best said Lumen Re’s balance-sheet strength is assessed as “strongest” while its operating performance is deemed “adequate.”

The rating agency noted that Lumen Re had been affected by increased losses from peak and secondary peril catastrophe loss events in 2021.

As a result, Lumen Re has begun a de-risking and re-underwriting process, seeking to improve contract terms and raise attachments on the reinsurance contracts it underwrites, so as to prevent outsized losses going forward.

This focus on re-underwriting and reducing risk is ongoing across the insurance-linked securities (ILS) market, as managers improve terms of coverage and hone their portfolios, all the while benefiting from increasing rates in the firming reinsurance market.

Michael Stahel, Partner and Portfolio Manager at LGT ILS Partners, recently explained how the investment manager is actively working to improve the portfolio and its terms.

Stahel told us that LGT ILS Partners has been taking steps to make aggregate deals work for the investment manager again, while also using the upcoming mid-year renewals as an optimal time to implement some needed changes.

Lumen Re provides the LGT ILS team with flexibility in how they transact, the ability to offer traditional reinsurance contract features such as reinstatements and also makes management of collateral simpler, particularly when it comes to rolling it over and dealing with the structural issues related to collateral retention by cedents, reducing the drag trapped collateral can have on traditional ILS strategies.