Rating agency AM Best gives Kenya Re good credit score

US rating agency AM Best has assigned Kenya Reinsurance Corporation (Kenya Re) a stable rating, meaning the firm is in a strong financial position in terms of ability to pay claims.

The agency assigned the majority State-owned firm a strong “bbb” (up from “bbb-”) credit rating meaning the listed re-insurer can comfortably pay claims.

AM Best also affirmed Kenya Re’s B+ rating on expectations that the reinsurer will deliver strong 2014 financial results.

The American firm expects Kenya Re to tame costs which are expected to increase in tandem with the firm’s regional expansion.

“Kenya Re’s earnings are expected to improve marginally at year-end 2014, compared to the prior year, in line with its recent positive trend and consistent with half-year 2014 reporting.

‘‘Results are projected to be supported by better non-life technical results, resilient profitability in its life portfolio and stable investment returns,” said the firm.

Kenya Re expenses have remained reasonable according to the rating. “Expense ratios remain at good levels when compared to historical standards and the bottom-line effect of write-offs reinsurance receivables has diminished during 2013 and 2014,” said analysts at AM Best.

Insurance companies use ratings by AM Best, Standard & Poor’s and other agencies when choosing firms to reinsure with, which has a positive impact on revenues.

An insurance sector report by Genghis Capital said Kenya Re lost some market share to Lagos-based Africa Reinsurance Corporation because of the competitor’s superior rating.

“Management has indicated that part of their market share has been eaten up by Africa Re. Part of the reason for the market share loss include Africa Re’s rating from AM Best and S&P who both rated the pan African reinsurer with an A-,” said Genghis Capital’s report.

Kenya Re said it expects 2014 growth to come from new products such as Shariah-compliant products and livestock covers.

“The emergence of Takaful business, micro insurance and agricultural insurance and political risk has necessitated provision of reinsurance service to the industry,” says Kenya Re chairperson Nelius Kariuki in the 2013 annual report.

Abidjan office

“These and the recent discovery of oil in northern Kenya and gas in Tanzania present an opportunity for us to grow our business.”

The company expects additional business from the West Africa region that will be driven by its Abidjan office.

“The subsidiary is intended to focus on key Francophone states (Senegal and Mali) and North African markets,” said the report by Genghis Capital. Kenya Re recently said it plans to open an office in Lusaka, Zambia, which will serve the southern Africa market. Foreign markets account for 45 per cent of its revenues.

The insurer sold a 40 per cent stake to the public during the Mwai Kibaki administration, leading to its listing. Attempts by wheeler-dealers in the Moi administration to sell it had earlier floundered.

In 2013 the firm posted Sh11.66 billion in revenues, a 10 per cent increase from Sh10.56 billion made the previous year, while net profit increased by seven per cent to stand at Sh3 billion from Sh2.8 billion generated in 2012.