AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb+” (Good) 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 assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).

ZEP-RE’s balance sheet strength is underpinned by its risk-adjusted capitalisation that is comfortably at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), benefiting from a prudent asset allocation and low underwriting leverage. The ratings consider ZEP-RE’s exposure to high levels of economic, political and financial system risks, which are associated with operating in its core Eastern, Southern and West African markets. However, this is mitigated partially by ZEP-RE’s good geographic diversification by countries in Africa. In addition, investment risk has reduced materially in recent years, as ZEP-RE has increased the allocation of its deposits and debt instruments into territories with low country risk exposure.

ZEP-RE has a track record of strong underwriting performance across the cycle, albeit with some volatility. Over the past five years (2019-2023), the company has reported a return-on-equity (ROE) ratio in the range of 4% to 12% (these metrics are calculated using a combination of IFRS 4- and IFRS 17-reported figures). AM Best notes that ROE should be viewed in the context of ZEP-RE’s reporting currency (USD), which somewhat limits the impact of high inflation in many African markets on the company’s reported net income, as well as its high levels of capitalisation. ZEP-RE reported technical profits in 2023, underpinned by a non-life combined ratio (net/net) of 81%, representing a six-percentage point improvement compared with 2022, as calculated by AM Best. This follows remedial actions taken by management after the company reported technical losses in 2018 to 2020.

ZEP-RE operates as a composite reinsurer across Africa, with a focus on countries of the Common Market for Eastern and Southern Africa (COMESA), as well as the Conférence Interafricaine des Marchés d’Assurances (CIMA) regions. The company’s competitive position benefits from compulsory cessions in a number of sub-Saharan African countries. With good long-term growth prospects, insurance revenue is expected to continue to expand in local currency terms as primary markets develop.

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