Best Affirms Kenya Re ‘B+ Rating

August 18, 2006

A.M. Best Co. has affirmed the financial strength rating of “B+” (Very Good) and the issuer credit rating of “bbb-” of Nairobi-based Kenya Reinsurance Corporation Limited with a stable outlook.

“The ratings reflect Kenya Re’s solid current and prospective risk-adjusted capitalization and very good operating performance,” said Best. “Offsetting factors are the high concentration of real estate in the investment portfolio and the unsophisticated risk management with regards to the probable maximum loss (PML) exposure assessment.”

Best said it “believes that Kenya Re’s risk-adjusted capital position is likely to remain solid over the next two years, with shareholders’ equity projected to grow by approximately 5 to 7 percent from 2005 to 2007. Nevertheless, Kenya Re remains exposed to risk concentration associated to movements in the Kenyan real estate market, as approximately half of its assets are allocated to these investments.”

“Kenya Re’s operating performance is expected to remain very good, Best continued, “although it projects a slight decline in pre-tax profits in 2006 to the range of KES 600-650 million (USD 8.4-9.1 million), compared to KES 681 million (USD 9.4 million) in 2005, which is likely to be a result of a slight deterioration in underwriting profit during the same year.”

“In A.M. Best’s opinion, Kenya Re’s combined ratio is likely to increase to approximately 80 percent-83 percent in 2006 due to one-off redundancy costs impacting the already high expense ratio and to a small increase of the loss ratio to approximately 35 percent.”

Best also indicated that in its opinion, “Kenya Re’s risk management–with regards to its PML exposure–is unsophisticated as the company does not employ external modeling tools in order to monitor its exposure or assess potential catastrophe loss scenarios.”

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