LONDON--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” of ZEP-RE (PTA Reinsurance Company) (ZEP-RE) (Kenya). The outlook of these Credit Ratings (ratings) remains stable.
The ratings reflect ZEP-RE’s balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, neutral business profile and marginal enterprise risk management.
The company’s balance sheet strength is underpinned by risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which remained at the strongest level as at year-end 2017. AM Best expects risk-adjusted capitalisation to be maintained at the strongest level prospectively, with sufficient earnings retention to support future growth. The balance sheet strength assessment also considers the company’s conservative investment portfolio and its track record of securing long-term private funding via share issues. Offsetting factors to balance sheet strength include country risk exposures associated with operating across several insurance markets in Africa.
ZEP-RE has generated a strong five-year (2013-2017) average return on equity of 11.5%, supported by robust non-life combined ratios averaging 91% over the same period. Investment returns further supplement earnings with net investment yields averaging 4.9% over the past five years (2013-2017); however, net investment income has trended down in 2017 and is anticipated to remain at a lower level prospectively. Third-quarter results in 2018 indicate continued profitability, albeit at a reduced level compared with the prior period, primarily due to a higher frequency of claims reported across the region during the year.
ZEP-RE operates as a composite reinsurer across Africa, with a focus on East Africa’s insurance markets. The company is targeting an ambitious growth strategy to enhance its presence in its core markets, as well as expanding in territories with attractive profit potential; however, following slower growth than anticipated over recent years, it is uncertain whether ZEP-RE will achieve its business plans. ZEP-RE’s competitive position also benefits from access to mandatory cessions.
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