Kenya Re could be headed for turbulent times as the company is staring at possible large losses from its a******t and health account one month after recording a 24.1% decline in net profit.
A report released on September 18 and authored by South African credit security classes ratings firm Global Credit Ratings (GCR) revealed that the company’s underwriting profitability is likely to remain susceptible to event driven f**e losses as well as deterioration of credit worthiness of its clients which could lead to instability in earnings.
Insurance companies’ main source of revenue is investments made with premiums (money) paid by policy holders. If the amount of premiums paid to an insurance company after administrative costs have been deducted is more than the claims paid out, without taking into account investment returns, the additional profit is what is referred to as underwriting profit.
The report however describes the re-insurer’s ability to pay national claims as stable.
GCR attributes the re-insurers strong position to the strengthening of asset liability management approaches in recent years and a sizeable investment portfolio supported by “very strong liquidity metrics”, which are likely to be sustained over the medium term.
“Kenya Re’s rating is supported by capital buffers (mandatory capital that financial institutions are supposed to hold in addition to other minimum capital requirements) which have cushioned risk adjusted capitalisation metrics within a very strong range over the review period,” reads part of the report.
The report further highlights that Kenya Re’s business is strong owing to its favourable and strategic position in the industry as well as diversified earnings.
“In this regard, Kenya Re’s domestic market position (18% market share) is underpinned by compulsory cessions (shares ceded by insurance companies to a re-insurer like Kenya Re), and the affiliation with the government, while earnings are fairly spread across different geographic locations and lines of business,” the report further reads.
Kenya Re’s establishment of subsidiaries in Southern and West Africa in recent years has also been lauded by the ratings agency saying the move has cemented relationships with players across the continent.
As such, Kenya Re’s business profile is expected to remain strong, further supported by strong brand recognition and elevated underwriting capacity relative to local and regional players, the report says.
The re-insurance company recorded a half year profit of Ksh1.22 billion as at the end of June 2018, down from the Ksh1.62 billion recorded during a similar period last year.
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