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