Kenya Re downgraded on enterprise risk management concerns

AM Best has downgraded Kenya Reinsurance Corporation due to concerns over the effectiveness of its enterprise risk management (ERM) in the face of expected business growth and increasingly sophisticated competition.

AM Best has downgraded the Financial Strength Rating to B (Fair) from B+ (Good) and the Long-Term Issuer Rating to bb+ from bbb- of Kenya Re. The outlook of these Credit Ratings (ratings) has been revised to stable from negative.

Kenya Re’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), is consistent with a strongest assessment; however, offsetting balance sheet strength factors include uncertainties related to the company’s natural catastrophe exposure and the financial system risk associated with Kenya’s financial markets. Although AM Best expects risk-adjusted capitalisation to remain at the strongest level over the longer term, the company is expected to face challenges in funding its expansion in its regional markets, should those markets continue to deliver high growth.

Kenya Re’s business profile benefits from a very strong market position in Kenya where the company enjoys mandatory cessions of 20 percent and generates in the region of 57 percent of its gross written premium. However, this is offset by a significantly weaker competitive market position elsewhere.

AM Best assesses the company’s analytical capabilities to be limited, and management effectiveness to be untested in light of the significance of mandatory cessions. Kenya Re’s ERM is developing from a low base, and AM Best believes that the risk management function’s ability to evaluate measures relevant to financial strength and performance, generate corporate actions, and influence management decisions is weak.

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