Ukraine-based insurer battles home market uncertainties

Lemma Insurance Company’s rating outlook remains negative, according to rating agency AM Best Europe.

The Ukraine-based insurer has had its financial strength rating of B (Fair) and issuer credit rating of ‘bb’ affirmed by the rating agency as its European subsidiary, Lemma Europe, battles with liquidation.

The uncertainty over Lemma’s financials owing to regulatory and economic risks within its targeted markets leaves the company with a negative outlook, according to AM Best.

Lemma Europe was liquidated in 2012 and legal proceedings are ongoing. It was part of Lemma Insurance Company prior to 2011 when investments in the subsidiary company were sold.

Lemma Insurance Company still faces about €10m (£8.46m) of claims from its reinsurance commitments to Lemma Europe from its 2009-2010 accounts.

The insurer remains exposed to high country risk as Ukraine continues to battle an economic downturn. Of Lemma’s gross written premium, 37% came from Ukraine in 2012, and its investment portfolio is concentrated in Ukraine.

In July the UK Financial Services Compensation Scheme (FSCS) stated that the failure of Lemma Europe could cost it about £25m in claims payouts, according to its annual report.

The FSCS said it had identified 800 Lemma Europe-related claims that fell within the scope of its protection. The majority are for solicitors’ professional indemnity insurance.

Partners at Grant Thornton were appointed as Lemma Europe’s liquidators in September, and the FSCS declared the firm in default in October 2012.