UKRAINE: A.M. Best Affirms Ratings of Lemma Insurance Company

28 October 2013 —
A.M. Best Europe - Rating Services Limited has affirmed the financial strength rating of B (Fair) and issuer credit rating of "bb" of Lemma Insurance Company (Lemma) (Ukraine). The outlook for both ratings is negative.

The negative outlook continues to reflect the liquidation of Lemma Europe Insurance Company (Lemma Europe), which remains unresolved. Additionally, the rating actions reflect the uncertainty associated with Lemma's financial profile due to regulatory and economic risks within its targeted markets.

Legal proceedings for Lemma Europe are ongoing, following its liquidation in 2012. Prior to 2011, Lemma Europe was an affiliated company of Lemma. Since then, investments in the company have been sold. Lemma faces claims of approximately EUR 10 million from its reinsurance obligations to the company in respect of the 2009-2010 years of account. Based on A.M. Best's current understanding of Lemma's obligations to Lemma Europe, the company's risk-adjusted capitalisation is expected to remain at a supportive level.

Following A.M. Best's downgrade of Lemma in 2012, the company lost around a third of its premium volumes in 2012, largely due to not meeting minimum rating requirements for the provision of reinsurance capacity in Kazakhstan. Premium volumes were also impacted by the change in Lemma's underwriting strategy in Kazakhstan. Business sourced from this region accounted for 47% of gross written premium (GWP) in 2012 (2011: 56%). However, A.M. Best notes a 24% rise in GWP derived from Kazakhstan as at the third quarter of 2013.

Lemma is exposed to high country risk due to the Ukrainian economic downturn. Business derived from Ukraine (representing 37% of GWP in 2012) has been subject to volatility in recent years, although A.M. Best notes that the company has been restructuring its underwriting portfolio to focus on quality risks and greater geographic spread of business. Additionally, Lemma's investment portfolio remains solely concentrated in its domestic market. A.M. Best will continue to monitor the impact of all adverse market developments on Lemma's financial profile.

There are currently no upward rating pressures. Negative rating actions could result from further deterioration to Ukraine's economic environment, evidence of reputational damage from the liquidation of Lemma Europe or a decline in Lemma's financial profile.

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UKRAINE: A.M. Best Affirms Ratings of Lemma Insurance Company
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