Kenya Reinsurance Corporation (Kenya Re) #ticker:KNRE says concern by American rating agency A.M. Best over its enterprise risk management—in the face of expected business growth and increasingly sophisticated competition—is being addressed.
In February this year A.M. Best downgraded the financial strength rating of Kenya Re to B (Fair) from B+ (Good). It also cut the long-term issuer rating to bb+ from bbb-.
The insurance-focused ratings agency also cited uncertainties related to the NSE-listed re-insurer’s ability to grow its capital resources at the same rate that it increases its revenue “over the longer term”.
“What we are doing is to address each of those issues raised,” said chief executive officer Jadiah Mwarania at a press briefing on the company’s results.
“Some of them could be environmental based on the country’s ratings.”
Mr Mwarania said Kenya Re officials are set to meet A.M. Best officials to address the concern.
“We are having a meeting with A.M. Best in September. We also took opportunity of visiting them in London to see what it is they are looking for,” said Mr Mwarania.
“While I hold a different personal opinion when I look at the fundamentals of Kenya Re but AM Best said, and so we accepted and we addressed the issues they raised,” he said.
Kenya Re is also engaging Johannesburg ratings agency GCR which early last month placed its national scale claims paying ability rating of AA(KE) and international scale claims paying ability rating of BB “under review”.
“While the ratings are expiring today (August 1), GCR is currently engaging with the rated entity and expects to update the current ratings and publicly release them by the end of September 2018,” said the GCR on August 1 without divulging additional information.
Auditor-General Edward Ouko in a report of the re-insurer for its 2017 full-year accounts raised doubts on its revenue recognition format.
“The group has estimated unearned premium reserves at 40 per cent of the written premiums to defer premium income written but not earned during the reporting period,” he pointed out.
Kenya Re posted a 24.19 per cent drop in net profit in the half year ended June, weighed down by a decline in its gross written premiums. Its net profit stood at Sh1.22 billion in the period compared with Sh1.62 billion the year before.
A rating review or watch signals change of grade. It gives a stronger indication on future rate changes than credit outlooks.