East Africa Reinsurance Company(EARe) has a track record of adequate operating performance, with return-on-equity moderately exceeding the inflation in Kenya over the past five years, says AM Best.
Prudent underwriting has supported improved technical performance in recent years. The company’s net/net combined ratio of 94.1% for 2023 represented a 4.5-percentage-point improvement compared with 2022, as calculated by AM Best.
Overall earnings remained driven by favourable investment income reflecting the high interest rates prevalent in Kenya.
Ratings affirmed
AM Best has affirmed EARe’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 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.
The company’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), and benefits from its low underwriting leverage.
Investments
The ratings also consider EARe’s exposure to heightened economic, political, and financial system risks in Kenya, where the majority of its assets are invested. Nonetheless, following the recent deterioration in the credit quality of Kenya’s government debt, the company is executing remedial actions to de-risk its investment portfolio.
EARe is a small reinsurer by global standards, with insurance service revenue of $33m in 2023. The company has a presence in over 30 countries in Africa and Asia, with premium volumes derived primarily from East African markets.