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A.M. Best Downgrades Issuer Credit Rating of Lemma Insurance Company

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

The rating actions reflect A.M. Best’s concerns following the announcement of Lemma Europe Insurance Company’s (Lemma Europe) liquidation, a company that shares common ownership and control with Lemma. Liquidation and legal proceedings are ongoing, but Lemma may potentially face a claim of approximately EUR 10 million for claims underwritten by Lemma Europe in 2009/2010 and reinsured by Lemma.

The issues surrounding the dispute have highlighted problems with Lemma’s corporate governance and controls as well as the complexity and transparency of the ownership structure. A.M. Best believes that Lemma’s risk-adjusted capitalisation remains in line with its ratings and is sufficient to absorb the cost of any contingent liability arising from the dispute with Lemma Europe. However, the reputational risk of Lemma Europe’s liquidation is likely to negatively impact the business profile of Lemma.

Positive rating actions could result from a simplification of Lemma’s group structure as well as an improvement in its enterprise risk management.

Negative rating actions could result from further control failings and a deterioration in the company’s underwriting performance and 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 Co.
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 Co.