LONDON--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb+” (Fair) of East Africa Reinsurance Company Limited (EARe) (Kenya). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect EARe’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management.
EARe’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s risk-adjusted capitalisation benefits from a relatively prudent investment allocation and low underwriting leverage. A partially offsetting rating factor is EARe’s strategy to maintain a negative currency asset-liability mismatch on its foreign currency denominated business (approximately half of the company's gross total sum insured), which exposes the company to potential capital volatility. The ratings also consider the company’s significant exposure to the high economic, political and financial system risks in Kenya, where over 90% of EARe’s assets are invested.
EARe has a track record of adequate operating performance despite challenging market conditions, evidenced by a solid five-year (2016-2020) weighted average return–on-equity (ROE) of 12.6%. ROEs should be viewed in light of the moderate levels of inflation in Kenya, which have averaged approximately 6% over the same period. Underwriting earnings have been supported by good results from life operations and modest results from non-life business, which translated in a five-year weighted average combined ratio of 99.1%.
EARe is a small reinsurer by global standards, with gross written premium of USD 37 million in 2020. The company has a presence in over 30 countries in Africa and Asia, with premium volumes skewed toward East African markets.
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