AM Best has revised its Long-Term Issuer Credit Rating (Long-Term ICR) to stable from negative for Kenya Reinsurance Corporation Limited (Kenya Re).
The rating agency explained that the revision of the Long-Term ICR outlook to stable, follows corrective actions initiated by management in 2020, which it expects to lead to more stable underwriting performance.
It noted that company actions include the non-renewal of its highly unprofitable crop business originating from the Indian subcontinent, as well as an increased focus on underwriting discipline and a strengthening of credit control procedures.
At the same time, the rating agency affirmed the Financial Strength Rating (FSR) of B (Fair) and the Long-Term ICR of “bb+” (Fair) of Kenya Re, and maintained the outlook of the FSR as stable.
The rating agency said that the credit ratings reflect Kenya Re’s balance sheet strength, which it assesses as very strong, as well as its adequate operating performance, neutral business profile and weak enterprise risk management.
Moreover, analysts noted that Kenya Re’s balance sheet strength assessment is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio.
Capital consumption is also influenced significantly by the reinsurers exposure to illiquid investments, such as private equity and real estate, which together account for two-fifths of its investment portfolio.
AM Best also added that the assessment also considers Kenya Re’s exposure to the very high levels of economic, political and financial system risks that are associated with its core markets, as well as the company’s recent history of severe reserve deficiencies relating to crop business.
Furthermore, the rating agency stated that management has now largely exited crop business and, consequently, it expects reserve volatility to subside.
