Ratings agency A.M. Best has revised Kenya Re’s outlook to negative from stable citing requirement for more capital and dependence on investment earnings.
However, the New Jersey-based credit rating firm affirmed Kenya Re’s financial strength at B+ which means the reinsurer can meet ongoing obligations.
It was also accorded a long-term issuer credit rating of “BBB-”, a mark of ability to pay debts.
“The revised outlooks for Kenya Re’s ratings reflect a downward trend in risk-adjusted capitalisation over recent years, a need to accelerate the development of the enterprise risk management framework and culture, pressures on investment income, and emerging challenges around funding the company’s expansion in its regional markets, should those areas continue to deliver high growth,” A.M. Best said in its latest coverage note.
“Kenya Re’s operating results during the first nine months of 2016 were ahead of those achieved during the same period of 2015, although A.M. Best notes that quarterly results can be volatile.”
Kenya Re managing director Jadiah Mwarania said he concurs with the issues raised by the credit agency.
“At our rate of growth, we require more capital. We already have an asset-liability matching policy,” Mr. Mwarania said in an interview with the Business Daily.
The State-backed reinsurer posted half-year net profit of Sh1.56 billion as at June 2016, a growth of 4.1 percent compared to the previous year.
Investment income grew by a fifth to hit Sh1.72 billion in the period under review, growing faster than underwriting income.
“Reinsurers mostly make money from investments because we must invest the premiums,” said Mr. Mwarania.
A.M. Best said it expects Kenya Re to continue making good profits over the medium term, supported by mandatory sessions in Kenya’s market, whilst investment returns, which have been exceptionally high in recent years, may come under downward pressure.
Kenya Re’s local concessions, which guarantees the firm 20 percent of Kenya’s re-insurance premiums, was renewed last year for a further five-year period.
It expects more profit from concessions arising from covering the multi-billion marine insurance.
From January 1 this year or goods imported into Kenya must be underwritten locally.
Credit: Business Daily