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 Kenya Reinsurance Corporation Limited (Kenya Re) (Kenya). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Kenya Re’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and weak enterprise risk management.
Kenya Re’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio, which benefits from the company’s low underwriting leverage. A key driver of capital consumption is Kenya Re’s exposure to illiquid investments, such as private equity and real estate, which together account for two-fifths of the company’s investment portfolio. The balance sheet strength assessment also considers Kenya Re’s exposure to the very high levels of economic, political and financial system risks that are associated with its core markets, as well as the company’s recent history of severe reserve deficiencies relating to its crop business. Since 2021, the company has exited a substantial portion of its crop business; consequently, AM Best expects reserve volatility to subside over the medium term.
AM Best views Kenya Re’s operating performance as adequate, considering its five-year (2018-2022) weighted average return-on-equity ratio of 9.6% and the high level of inflation in Kenya. In recent years, the company reported a modest technical profit in its non-life portfolio, which accounts for the majority of its premiums. This follows corrective actions initiated by management in 2020. Kenya Re’s earnings remain driven by investment operations, as evidenced by a five-year weighted average net investment return including gains of 9.1%.
Kenya Re operates as a composite reinsurer primarily across Africa and Asia, with a focus on markets in East Africa. The company has privileged market access in Kenya, where it benefits from a 20% compulsory cession from domestic insurers. The company’s competitive position is significantly weaker in other geographic markets. Kenya Re’s risk management framework is considered to be evolving and its risk management capabilities are weak when compared with its risk profile.
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