Kenya Re insurance’s (NSE: KNRE) has been assigned a negative outlook from stable by ratings agency A.M. Best.
“The revised outlooks for Kenya Re’s ratings reflect a downward trend in risk-adjusted capitalisation over recent years, a need to accelerate the development of the enterprise risk management framework and culture, pressures on investment income, and emerging challenges around funding the company’s expansion in its regional markets, should those areas continue to deliver high growth,” A.M. Best in its latest coverage note.
In its ratings analysis, the US rating agency noted that the reinsurance firm needs more capital and High dependence on investment earnings.
However, the credit rating firm affirmed its financial strength at B+ which means it demonstrates ability to meet ongoing debt obligations.
Market analysts expect the company’s overall earnings to continually be supported by the mandatory cessation rates.
“Additionally, Kenya Re has the best asset mix, property (22.3% of total assets), equities (7.7% of total assets), and government securities at 25.6% of the total assets as at FY15A. The company will still continue to benefit from its portfolio mix. Notably, continuous expansion of non-domestic business increases cedants outside Kenya,” according to Genghis Research.
In June 2016, Kenya Re acquired an additional 4.4% stake in Zep -Re raising its stake to 19.88%. Contribution of this investments will be factored in FY16E. Investors stand to gain from higher returns to be unlocked, gauging its cheap valuation multiples of P/E and P/B of 4.0x and 0.6x vis-à-vis industry average of 8.62x and 1.04x (respectively).