AM Best has revised its Long-Term Issuer Credit Rating (Long-Term ICR) outlook to negative from stable for Kenya Reinsurance Corporation Limited (Kenya Re).
The rating agency explained that the negative outlook on the Long-Term ICR reflects Kenya Re’s poor technical performance in recent years
It noted that this performance has been demonstrated by non-life underwriting results that are significantly weaker than its historical average and regional peers in 2018 and 2019.
At the same time, AM Best and affirmed the Financial Strength Rating (FSR) of B (Fair) and the Long-Term ICR of “bb+” of Kenya Re, and maintained the outlook of the FSR as stable.
Analysts said the ratings reflect Kenya Re’s balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, neutral business profile and weak enterprise risk management.
Kenya Re reported an unaudited non-life underwriting loss of KES 2.6 billion in 2019, significantly higher than the loss of KES 1.1 billion reported in 2018.
The deterioration in performance was not anticipated by AM Best and was driven primarily by the company’s books of business in the Middle East and Asia.
While the company’s net income improved to KES 4.0 billion (compared to KES 2.3 billion in 2018), this was primarily driven by a one-off unrealised gain of KES 1.9 billion from an investment property write-back.
Given the International Monetary Fund’s negative economic growth projection for Sub-Saharan Africa in 2020, AM Best expects operating conditions to be challenging, and warned that failure to improve underwriting performance will likely result in a further negative rating actions.
