The operating performance of Kenya Reinsurance Corporation is seen as adequate, considering its return-on-equity ratio has consistently exceeded the generally high inflation level in Kenya in recent years, says AM Best.
Since initiating corrective actions in 2020, the company's non-life portfolio has reported modest technical profits in most years. Nonetheless, overall earnings remain driven by favourable investment income reflecting the high interest rates prevalent in Kenya, in response to the inflationary environment, adds the global credit rating agency.
For instance, for the first half of 2024, Kenya Re reported insurance service results of KES606.7m ($4.7m) and total investment income of KES1,856.4m, whereas profit after tax stood at KES1,055.4m.
Ratings affirmed
AM Best has affirmed Kenya Re’s Financial Strength Rating of ‘B’ (Fair) and the Long-Term Issuer Credit Rating of ‘bb+’ (Fair). The outlook of these credit 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 approximately one-third of its 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 history of severe reserve deficiencies relating to its crop business, the majority of which was exited in 2020. Since then, reserving development has demonstrated a stabilising trend.
Business profile
Kenya Re operates as a composite reinsurer primarily across Africa, 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.
Kenya Re’s risk management framework is considered to be evolving and its risk management capabilities are weak when compared with its risk profile. However, ongoing developments in the company’s risk management framework and processes are expected to gradually strengthen its risk management capabilities.