South African ratings firm Global Credit Rating has given Kenya Re-insurance a boost after it reviewed its methods of measuring insurance firms in May.
GCR moved the reinsurer from AA national scale to AA+ with a stable outlook and from BB with a negative outlook in the international scale to B+ with a stable outlook.
The ratings agency has challenged Kenya Re to strengthen risk-adjusted capitalisation and liquidity to improve its ratings.
“GCR announced that it had released new criteria for rating insurance companies in May 2019. Consequently, the rating for Kenya Re was placed ‘Under Criteria Observation’.
GCR finalised the review for Kenya Re under the released Criteria for Rating Insurance Companies, May 2019. As a result, the rating for Kenya Re has been reviewed in line with the new methodology and subsequently removed from ‘Under Criteria Observation’,” GCR said.
Kenya Reinsurance reported a 36 per cent decline in net profits from Sh3.5 billion in 2017 to Sh2.2 billion of which short-term business saw a net decline of 50 per cent from Sh3.6 billion to Sh1.8 billion.
GCR said the company may face a negative rating if revenues, which remain under pressure due to claims volatility, continue to decline offsetting the impact of prudent underwriting policies.
“Negative rating action may follow a sustained deterioration in earnings and/or a material reduction in liquidity,” GCR said. Kenya Re, however, has sound investment income from its sizeable investment portfolio expected to maintain solvency strength over the rating period.
State guarantees Kenya Re compulsory premiums of 18 per cent in Kenya which contributes to half of the company’s income.