AM Best Revises Issuer Credit Rating Outlook to Stable for Kenya Reinsurance Corporation Limited

AM Best has revised the outlook of the Long-Term Issuer Credit Rating (Long-Term ICR) to stable from negative and affirmed the Financial Strength Rating (FSR) of B (Fair) and the Long-Term ICR of “bb+” (Fair) of Kenya Reinsurance Corporation Limited (Kenya Re) (Kenya). The outlook of the FSR is stable.

These Credit Ratings (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.

The revision of the Long-Term ICR outlook to stable follows corrective actions initiated by management in 2020, which AM Best expects to lead to more stable underwriting performance. Company actions include the non-renewal of its highly unprofitable crop business originating from the Indian subcontinent, an increased focus on underwriting discipline and a strengthening of credit control procedures.

Kenya Re’s balance sheet strength assessment is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio. Capital consumption is influenced significantly by the company’s exposure to illiquid investments, such as private equity and real estate, which together account for two-fifths of its investment portfolio. The 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 crop business. Management has now largely exited crop business and, consequently, AM Best expects reserve volatility to subside.

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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AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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