Announcements

GCR affirms Kenya Reinsurance Corporation Limited’s rating of AA(KE); Outlook Stable.

Johannesburg, 31 Oct 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Kenya Reinsurance Corporation Limited of AA(KE); with the outlook accorded as Stable. Furthermore, Global Credit Ratings has affirmed the international scale claims paying ability rating assigned to Kenya Reinsurance Corporation Limited of BB+, with the outlook accorded as Stable. The rating(s) are valid until August 2015.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Kenya Reinsurance Corporation Limited (“Kenya Re”) based on the following key criteria:

Kenya Re holds a strong position in the local insurance market, with a stable gross written premium market share of 20% in 2013. Local market positioning is sustained by compulsory cessions, and the affiliation with the Kenyan government (60% shareholding). Statutory terms pertaining to compulsory cessions, due for review in 2015, are expected by management to remain steady, providing Kenya Re with a secure revenue stream and steady position over the rating horizon.

Kenya Re’s position as an established reinsurer across East Africa contributes positively to the rating. Market positioning across the foreign portfolio is increasing, providing the reinsurer with a moderate level of regional (and, albeit to a lesser degree, cross-continental) market strength. The foreign portfolio is expected to be the majority income generator going forward.

Kenya Re evidences a very strong level of risk-adjusted capitalisation, representing a key rating strength that is expected to persist over the rating horizon. Supported by retained income, the reinsurer’s capitalisation remains supportive of its business plan. In this regard, the international solvency margin has remained robust over the review period, with forecasts pointing to sustained strong levels. Furthermore, statutory solvency remains well above the required minimum.

Kenya Re adopts a balanced investment approach, supportive of sound liquidity metrics, which are expected to remain robust in the medium term. Banking counterparty risk is assessed to be moderate. Life policyholder obligations are viewed to be very well funded, with the life fund evidencing a large risk margin above the actuarially determined value of future benefits. Some degree of capital risk is, however, evident with respect to non-cash investments (combined property and listed equities amounted to 56% of 2013 shareholders’ interest).

Core profit generation has evidenced a favourable trend over the past 18 months, over which time Kenya Re has returned to underwriting profitability. GCR’s view of the reinsurer’s earnings capacity is favourably impacted by the improved cost containment exhibited during this period, which we view to provide the company with increased profit headroom going forward. Product risk is viewed to be at an intermediate level, impacted by the high levels of volatility and losses stemming for the two core books.

The excess of loss retrocession programme provides adequate capacity and reflects low retention levels relative to capital. All retrocession placements are with rated entities, which reflect a moderately strong level of aggregate credit strength.

The international scale rating is impeded by Kenya’s sovereign rating of B+, and the fact that the reinsurer’s assets are almost entirely domiciled locally.

Kenya Re’s national scale rating currently matches the ceiling applicable to entities operating within the Kenyan insurance industry. Accordingly, an upgrade of the rating could potentially follow a strengthening of key industry factors. In terms of negative rating triggers, the cancellation of the compulsory cessions, coupled with limited cover uptake through voluntary cessions to the reinsurer, may have medium term ramifications. In addition, sustained underwriting losses and/or a material change in the investment policy towards a more aggressive stance, could be negatively viewed. Further, a protracted and material decline in capitalisation levels could impact adversely on the rating.

For a detailed glossary of terms utilised in this announcement please click here

NATIONAL SCALE RATINGS HISTORY INTERNATIONAL SCALE RATING HISTORY
Initial rating (September 2009) Initial rating (September 2009)
Claims paying ability: AA(KE) Claims paying ability: BB+
Outlook: Stable Outlook: Stable
Last rating (August 2013) Last rating (August 2013)
Claims paying ability: AA(KE) Claims paying ability: BB+
Outlook: Stable Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Marc Chadwick
Sector Head: Insurance
(011) 784-1771
Chadwick@globalratings.net

Secondary Analyst
Rodwell Chevure
Junior Analyst: Insurance
(011) 784-1771
Chevure@globalratings.net

Committee Chairperson
Sheri Few
Senior Analyst: Insurance
(011) 784-1771
Few@globalratings.net


APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Insurance Companies (updated July 2014)
Criteria for Rating Assurance Companies (updated July 2014)
Kenya Re rating reports, 2009 – 2013.

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

Kenya Reinsurance Corporation Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit rating/s has been disclosed to Kenya Reinsurance Corporation Limited with no contestation of the rating.

The information received from Kenya Reinsurance Corporation Limited and other reliable third parties to accord the credit rating(s) included the 2013 audited annual financial statements (plus four years of comparative numbers), latest Internal and/or external report to management, full year detailed budgeted financial statements for 2014, year to date management accounts to June 2014, the 2014 retrocession cover notes, and other documentation related to the rating exercise.

The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.

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