Press Release
A.M. Best Europe -- Rating Services Limited has affirmed the financial strength rating of B+ (Good) and the issuer credit rating (ICR) of “bbb-” of Kenya Reinsurance Corporation Limited (Kenya Re) (Nairobi, Kenya). The outlook for both ratings remains stable.
The ratings reflect Kenya Re’s good and stable overall performance as well as a strong risk-adjusted capitalization In addition, the ratings incorporate the company’s good regional business profile. An offsetting rating factor remains the company’s weak level of Enterprise Risk Management (ERM).
Kenya Re achieved a good operating performance in 2011, which is underpinned by positive combined technical and investment results as demonstrated by a combined ratio of 87.8% and an investment return (including unrealized gains) of 13.8%, respectively. Going forward, A.M. Best expects that Kenya Re will continue to achieve a good overall performance that is in line with its five-year average return of capital and surplus of 15.2%.
Kenya Re’s risk-adjusted capitalisation is expected to remain strong in 2012 and 2013, supported by continuously strong retained earnings arising from its profitable operating performance. In 2012, Kenya Re’s capitalisation was further strengthened by a capital raise of about KES 250 million (USD 2.9 million at the date of this press release). At year-end 2012, shareholders’ funds are expected to rise by about 20% to over KES 14 billion (USD 183million), enabling the company to adequately support its business plan, which seeks growth by approximately 15% for 2013 and 2014, respectively.
Kenya Re maintains a strong business profile as a reinsurer in its regional market. The company underwrites a diversified portfolio mainly comprising property and casualty risks, which represent approximately 72% of gross written premium in 2011. Compulsory cessions account for 37% of Kenya Re’s gross premium income, with the remainder being voluntary in nature and spread throughout Africa and internationally.
In A.M. Best’s view, Kenya Re’s ERM framework continues to be weak. The company does not employ any formalized modeling tools to assess its catastrophe exposure, which is reflected by an unsophisticated assessment of its probable maximum loss (PML). However, Kenya Re’s management is currently undertaking steps to improve its ERM framework. The quality of Kenya Re’s retro-cession programme has improved recently with a decline in nonrated or nonsecure reinsurers in its panel. However, A.M. Best believes that significant improvements remain to be seen.
Upward rating pressures are unlikely in the next two years.
Negative rating actions could occur if operating performance were to deteriorate. A significant deterioration of risk-adjusted capitalization would also put negative pressure on the ratings.
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 ”; “Rating Members of Insurance Groups” ; “Catastrophe Analysis in A.M. Best Ratings”; 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.
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