Best Affirms East Africa Re Ratings

October 6, 2006

A.M. Best Co. has affirmed the financial strength rating of “B” (Fair) and the issuer credit rating (ICR) of “bb” of Kenya’s East Africa Reinsurance Company Limited (EARE) with a stable outlook.

“The ratings reflect EARE’s improving risk-adjusted capitalisation offset by the reliance on investment returns to generate profits and the company’s limited business position,” said Best. “EARE has experienced a change in the senior management team, which in A.M. Best’s opinion will benefit the company through a more pro-active business approach and potentially lead to further expansion in the region.”

Best also said it “believes that EARE’s risk-adjusted capitalisation is likely to continue its improving trend over the next two years, mainly as a result of lower than anticipated net premium growth and prospective full earnings retention. Furthermore, A.M. Best expects the monitoring of catastrophe exposure to improve in the near term with the implementation of new risk management tools.

“In A.M. Best’s opinion, EARE’s net investment returns of approximately 8 percent are likely to remain the sole driver for net profits over the next two years, as the company’s combined ratio is projected to remain within the range of 101-104 percent mainly due to the high level of expenses with an expense ratio in the range of 40-45 percent.

A.M. Best believes that EARE’s business position is restricted as a result of its limited premium income (KES 1.2 billion [USD 16.5 million] in 2005) and its position as a market follower in the inwards reinsurance programmes it underwrites. The African reinsurance market is a competitive one and is mainly lead by larger government owned or international companies.”

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