AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb+” (Fair) for Kenya Reinsurance Corporation Limited (Kenya Re), based in Kenya. The outlook for these credit ratings is stable.
The ratings reflect Kenya Re’s very strong balance sheet strength, which AM Best assesses positively, alongside its adequate operating performance, neutral business profile, and weak enterprise risk management.
These updated ratings were also released following the reinsurer’s reported 10% decline in after-tax profits for the first half of 2024, totaling KSh 1.06 billion, down from KSh 1.17 billion during the same period in 2023.
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Kenya Re’s balance sheet strength is supported by its risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio. This strength is further reinforced by the company’s low underwriting leverage.
However, a significant factor affecting capital consumption is Kenya Re’s exposure to illiquid investments, including private equity and real estate, which comprise approximately one-third of its investment portfolio.
The balance sheet assessment also takes into account the high levels of economic, political, and financial system risks in Kenya Re’s core markets, as well as the company’s history of significant reserve deficiencies in its crop insurance business, most of which was exited in 2020. Since then, the company’s reserving practices have shown signs of stabilization.
AM Best considers Kenya Re’s operating performance to be adequate, noting that its return-on-equity ratio has consistently surpassed the generally high inflation rate in Kenya over recent years. Since implementing corrective measures in 2020, the company’s non-life insurance portfolio has generated modest technical profits in most years.
Nevertheless, overall earnings continue to be largely driven by investment income, which has benefited from the high interest rates in Kenya due to the inflationary environment.
Kenya Re functions as a composite reinsurer primarily across Africa, with a particular focus on East African markets. The company enjoys privileged market access in Kenya, benefiting from a 20% compulsory cession from domestic insurers.
However, its risk management framework is considered to be evolving, with current risk management capabilities viewed as weak relative to its risk profile. Ongoing improvements in Kenya Re’s risk management framework and processes are expected to gradually enhance its risk management capabilities.
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