Agency downgrades Kenya Re on poor performance

Kenya Re chief executive officer Jadiah Mwarania. FILE PHOTO | NMG 

By BRIAN NGUGI
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Summary

• American rating agency A.M. Best has downgraded the long-term Issuer credit rating (Long-Term ICR) outlook of listed Kenya Reinsurance Corporation (Kenya Re) to negative from stable.
• The insurance-focused agency said the negative outlook on the long-term ICR reflects "Kenya Re's poor technical performance in recent years".
• It noted the performance has been demonstrated by non-life underwriting results that are significantly weaker than its historical average and regional peers in 2018 and 2019.

American rating agency A.M. Best has downgraded the long-term Issuer credit rating (Long-Term ICR) outlook of listed Kenya Reinsurance Corporation (Kenya Re) to negative from stable.

The insurance-focused agency said the negative outlook on the long-term ICR reflects "Kenya Re's poor technical performance in recent years".

It noted the performance has been demonstrated by non-life underwriting results that are significantly weaker than its historical average and regional peers in 2018 and 2019.

"While the company's net income improved to Sh4 billion (2018: Sh2.3 billion), this was primarily driven by a one-off unrealised gain of Sh1.9 billion from an investment property write-back," said A.M. Best in a statement.

Given the International Monetary Fund's negative economic growth projection for Sub-Saharan Africa this year, A.M. Best added it expects operating conditions to be challenging."Failure to improve underwriting performance materially will likely result in a further negative rating action for Kenya Re," it said.

At the same time, A.M. Best 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.

The agency said the FSR ratings reflect Kenya Re's balance sheet strength, which AM Best categorised as "very strong", as well as its adequate operating performance, neutral business profile and weak enterprise risk management.

"They regraded the long-term outlook from stable to negative because of the economic down turn due to Covid-19 and the discrepancy between the 2019 loss ratio from our projection of the same," said Kenya Re chief executive officer Jadiah Mwarania.

"They explained that revision of outlook is something they do often across the world. The rating at B is unchanged."

Kenya Re reported an unaudited non-life underwriting loss of Sh2.6 billion in 2019, significantly higher than the loss of Sh1.1 billion reported in 2018.

The deterioration in performance was not anticipated by A.M. Best and was driven primarily by the company's books in the Middle East and Asia.

Kenya Re announced earlier this year, it will seek an extension to the law that forces local insurers to cede at least 20 percent of the reinsurance business to the Nairobi-listed firm.

This law is set to expire on December 31. Kenya Re is pushing for an extension and rise of the ceded business beyond 20 per cent.