Kenya Re given positive rating

South African rating firm Global Credit Ratings (GCR) has given favourable rating to Kenya Reinsurance’s (Kenya Re) financial strength. GCR said Kenya Re reflected sound liquidity, solid business profile and risk-adjusted capitalisation. GCR rated Kenya Re AA+ with a stable outlook.

“The entity demonstrated a strong financial profile, while business profile remained at intermediate levels, with small and risky presences in foreign markets diluting entrenched strong domestic market position,” said GCR in a statement.

GCR assessed Kenya Re’s capitalisation within strong range, even though with unrealised property revaluation gains supporting a strong capital growth of 13 per cent to Sh31 billion ($315 million) in the 2019 financial year up from Sh28 billion ($275 million) in 2018.

The firm said the re-insurer’s liquidity represented a credit strength - boosted by receivable collections following implementations of cash and carry regulations in different markets.

However, GCR warned that operating cash requirements - which rose 18 per cent due to claims pressures - could further restrain liquidity metrics and assessment over the medium term, amidst economic challenges hindering cash collections.

GCR added that given the persistence of claims pressures despite prudent underwriting policies, and likely pressure on investment income, the re-insurer’s earning potential will represent a key rating consideration over the medium term. The business profile of the re-insurer was unchanged within intermediate levels, characterised by a strong presence in Kenya diluted by limited competitiveness in foreign markets, said the rating agency.

GCR noted that outside Kenya, the Kenya Re recorded limited activity in multiple markets, with higher earning risks endorsed along business growth in select markets, factors that moderated assessment by the rating firm.

Nevertheless, GCR recognises small presences in other jurisdictions as potential sources of diversification, given traction gained in some markets and management endeavours to expand business in Africa,” said GCR.

However, GCR said a rating upgrade was unlikely “over the medium term” but said containment of earnings risk by Kenya Re could be “viewed positively” if stability in liquidity and risk-adjusted capitalisation were maintained.

It further warned that the Covid-19 might heighten Kenya Re’s earnings pressure.