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Kenya Re rating cut as competition hots up

American rating agency A.M. Best has downgraded the financial strength rating of listed Kenya Reinsurance Corporation (Kenya Re) to B (Fair) from B+ (Good). The long-term issuer rating was cut to bb+ from bbb-.

The insurance-focused ratings agency, however, revised the outlook of Kenya Re’s Credit Ratings (ratings) to stable from negative.

“The rating actions are the result of A.M. Best’s concerns over the effectiveness of Kenya Re’s enterprise risk management (ERM) in the face of expected business growth and increasingly sophisticated competition,” explained AM Best in an assessment issued Tuesday.

“Additionally, there are uncertainties related to the company’s ability to grow its capital resources at the same rate that it increases its revenue over the longer term.”

The agency, however, noted Kenya Re’s risk-adjusted capitalisation—as measured by Best’s Capital Adequacy Ratio (BCAR)—is consistent with a strongest assessment, offsetting balance sheet strength factors.

These, it said, include “uncertainties related to the company’s natural catastrophe exposure” and the financial system risk associated with Kenya’s financial markets.

“Although A.M. Best expects risk-adjusted capitalisation to remain at the strongest level over the longer term, the company is expected to face challenges in funding its expansion in its regional markets, should those markets continue to deliver high growth,” said the agency.

“Kenya Re’s ERM is developing from a low base, and A.M. Best believes that the risk management function’s ability to evaluate measures relevant to financial strength and performance, generate corporate actions, and influence management decisions is weak.”

Kenya Re had not responded to our queries on the assessment by the time of going to press.

It posted a 3.7 per cent rise in 2017 half-year after-tax profit as its gross written premiums and investment income grew marginally.

The reinsurer, which offers covers to over 150 firms across the region, reported a net profit of Sh1.6 billion for the period to June 2017 compared to Sh1.56 billion last year.

Its gross written premiums went up to Sh7.5 billion, slightly higher than the Sh7.09 billion reported in 2016.

Its earnings from investments also grew marginally to hit Sh3.6 billion this year compared to Sh3.55 billion in the previous period.

Kenya Re attributed its half-year performance to stiff competition in the sector and undercutting in the reinsurance market.

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