OLDWICK, N.J.--(Business Wire)--
A.M. Best Co. 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 reflectthe company`s strong prospective risk-adjusted capitalisation
and good market position. Offsetting factors include a weak level of enterprise
risk management, declining underwriting profitability and a high concentration
of real estate investment.
Kenya Re`s strong level of risk-adjusted capitalisation is supported by a high
relative level of capital and surplus. A.M. Best believes that future retained
earnings are likely to sufficiently support projected premium growth rates of
between 10% and 20% over the next two years, without any additional external
capital support.
A.M. Best considers that Kenya Re maintains a strong position within its
domestic market, which accounts for around 70% of the company`s premium income.
The company benefits from an 18% compulsory cession of all treaty business
written within Kenya. This compulsory cession is, however, due to terminate at
the end of 2010. A.M. Best believes that the potential loss of legal cessions
brings about a degree of uncertainty with regards to the company`s prospective
business profile.
In A.M. Best`s opinion, Kenya Re`s current level of risk management is weak. The
company does not employ any formalised modeling tools to assess its catastrophe
exposure, which is reflected by an unsophisticated assessment of its probable
maximum loss (PML). Additionally, A.M. Best is concerned that Kenya Re`s
management is not able to actively monitor other risk metrics, such as credit
exposure. Despite a significant improvement in the quality of outwards
retrocession over the past few years, Kenya Re maintains a portion of low
(non-investment grade/vulnerable) or non-rated reinsurers in its outwards
reinsurance panel. In 2009 this figure accounts for around one quarter of all
retrocessional exposure and has marginally increased when compared to 2008.
The performance of Kenya Re`s general technical account has deteriorated
gradually over recent years. A loss ratio of 32% achieved in 2005 has gradually
deteriorated to 50% in 2008 and is matched by a similar decline in combined
ratio, from 73% to 95% over the same period. A.M. Best notes that this current
level of operating performance is, however, still in line with the current
rating level. Looking into 2009 and 2010, A.M. Best anticipates that competitive
market conditions will continue to add pressure to the company`s underwriting
performance. Additionally, A.M. Best harbours some concerns at the high level of
outstanding debtors within the company`s balance sheet, which could potentially
result in write-offs and add further pressure to the company`s technical
performance.
A.M. Best has some concerns over the risk appetite and liquidity of Kenya Re`s
investment portfolio. Real estate investments account for around one third of
Kenya Re`s total assets, which equates to a little over a half of the company`s
capital base. A.M Best considers that this concentration on real estate
investment creates significant investment and liquidity risk.
For Best`s Credit Ratings, an overview of the rating process and rating
methodologies, please visit www.ambest.com/ratings.
The principal methodologies used in determining these ratings, including any
additional methodologies and factors that may have been considered, can be found
at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is a global full-service credit rating
organization dedicated to serving the financial and health care service
industries, including insurance companies, banks, hospitals and health care
system providers. For more information, visit www.ambest.com.
A.M. Best
Analysts
Timothy Prince, +(44) 20 7626 6264
timothy.prince@ambest.com
or
Carlos Wong-Fupuy, +(44) 20 7626 6264
carlos.wong-fupuy@ambest.com
or
Public Relations
Jim Peavy,+(1) 908-439-2200, ext. 5644
james.peavy@ambest.com
or
Rachelle Morrow,+(1) 908-439-2200, ext. 5378
rachelle.morrow@ambest.com
Copyright Business Wire 2009
