LONDON--(BUSINESS WIRE)-- A.M. Best Europe – Rating Services Limited has downgraded the financial strength rating to B (Fair) from B+ (Good) and issuer credit rating to “bb+” from “bbb-” of Lemma Insurance Company (Lemma)(Ukraine). The outlook for both ratings has been revised to stable from negative.

The rating actions reflect A.M. Best’s concerns regarding the continuing deterioration of the Ukrainian economy as well as ongoing political uncertainty. A.M. Best also notes that Lemma’s financial risk business has increased, which deepens the company’s exposure to the domestic economy.

Lemma’s profile and investment portfolio remain concentrated within the Ukraine, which has suffered in recent years as a result of the global financial crisis and political instability. A.M. Best believes that the risks pertaining to operating within the Ukrainian market have increased and consequently could have a negative impact on the company’s business profile and investments. Overall business continues to be volatile; in 2011, gross written premiums increased by 53% to UAH 598 million (USD 76 million) following two years of declining premiums. This increase included a 60% increase in financial risk business to UAH 94 million (USD 11 million), representing 7% of capital and surplus (2010: 5%). Although the performance of this business has improved since the financial crisis, it further exposes the company to the Ukrainian economy.

During 2011, Lemma’s profit before tax increased to UAH 272 million (USD 33 million); the result was driven by an improved technical performance as well as an increase in the retention ratio. A.M. Best expects that the combined effect of an increase in business and a reduction in reinsurance coverage will expose Lemma to higher underwriting risk going forward.

In A.M. Best’s view, Lemma’s risk-adjusted capitalisation is expected to slightly decline in 2012, as a result of increased net premium risk as the company expands its business. Although the impact of the loss of Zemelnyi Bank has been factored into A.M. Best’s analysis, risk-adjusted capitalisation for 2011 remains in line with Lemma’s current ratings.

Negative rating actions could result from a further deterioration in Ukraine’s economy as well as a deterioration in underwriting performance and risk-adjusted capitalisation.

Positive rating actions could result from an improvement in Lemma’s country risk profile as well as an improvement in risk-adjusted capitalisation.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilised include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding Universal BCAR”; “Catastrophe Analysis in A.M. Best Ratings”; “Rating Members of Insurance Groups”; and “Evaluating Country Risk”. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.

A.M. Best Europe – Rating Services Limited is a subsidiary of A.M. Best Company.Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.

A.M. Best Company
Arianna Brina, +(44) 207 397 0330
Associate Financial Analyst
arianna.brina@ambest.com
or
Anandi Nangy-Kotecha, +(44) 207 397 0271
Associate Director
anandi.nangy-kotecha@ambest.com
or
Rachelle Morrow, +(1) 908 439 2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, +(1) 908 439 2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

Source: A.M. Best Europe – Rating Services Limited