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) is 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 (ERM).
ZEP-RE’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), reflecting high earnings retention, a conservative investment allocation and low underwriting leverage. In addition, the assessment considers the company’s good financial flexibility owing to its supportive investor base, which has a record of subscribing new capital to fund growth. An offsetting factor in the balance sheet strength assessment is the high level of economic, political and financial system risk associated with operating in the company’s core markets.
ZEP-RE’s strong operating performance reflects a track record of solid underwriting profitability, as demonstrated by a five-year (2014-2018) weighted average combined ratio of 92.4%. Underwriting performance deteriorated moderately in 2018, demonstrated by a combined ratio of 97.4% (2017: 89.9%). However, AM Best expects future profitability to recover to a strong level supported by stringent underwriting controls and prudent risk selection.
ZEP-RE operates as a composite reinsurer across Africa, with a focus on markets in East Africa. It has an ambitious growth strategy to enhance its presence in its core markets and to expand in territories with attractive profit potential. However, following slower growth than anticipated over recent years, it is uncertain whether the company will achieve its targets. ZEP-RE’s competitive position benefits from access to mandatory cessions in a number of East African countries.
ZEP-RE’s ERM framework is considered to be evolving. AM Best notes that the company is taking steps to further develop an enterprise-wide risk-aware culture and to implement tools to reliably manage its risk exposures.
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