A.M. Best Affirms Ratings of East Africa Reinsurance Company Limited
LONDON, 20 November 2015—A.M. Best has affirmed the financial strength rating of B (Fair) and the issuer credit rating of “bb+” of East Africa Reinsurance Company Limited (EARe) (Kenya). The outlook for both ratings is stable.
The ratings reflect EARe’s supportive levels of risk-adjusted capitalisation, continued profitability of its underwriting operations and positive developments in the implementation of its enterprise risk management (ERM) framework. Partially offsetting rating factors include the company’s modest competitive profile in its regional market, the ongoing challenges related to the current conditions in the local reinsurance market and the entity’s exposure to Kenya’s volatile business environment.
During the first nine months of 2015, EARe has maintained its supportive levels of risk-adjusted capitalization whilst increasing its top line, exceeding the gross premiums underwritten during the first three quarters of 2014 by more than 20%. In addition, the company has reported positive developments in overall loss ratio that remains below 60%, resulting in a broadly stable technical margin when compared with the same period in 2014.
Despite the company maintaining stable profitability levels, its modest competitive profile in regional markets, in which other participants enjoy compulsory legal cessions, combined with the current soft market conditions, increase the expected volatility of operating earnings.
Moreover, EARe continues to be exposed to the uncertainties surrounding the business environment in Kenya and other regional territories.
Positive rating actions could occur if EARe continues developing its business profile whilst maintaining strong levels of risk-adjusted capitalisation. Additionally, positive rating movement may arise if there were a significant improvement in the company’s competitive position, likely as a result of changes in Kenya’s reinsurance market landscape with regard to mandatory retrocessions.
Negative rating actions could occur if there were a substantial deterioration of EARe’s risk-adjusted capitalization. Additionally, negative rating movement may arise due to an increase in Kenya’s perceived country risk.
Source: A.M. Best Company