GCR Ratings (GCR) has revised ZEP-RE (PTA Reinsurance Company)’s national scale financial strength (formerly claims paying ability) rating to AAA(KE), Stable Outlook, from AA+(KE), Stable Outlook.

Deniese Imoukhuede, Chief Risk Officer, ZEP-RE, said “The AAA rating is the highest rating that can be achieved on the nationale rating scale and hence demonstrates the hard work we have put in to secure this milestone.”

Hope Murera, CEO of ZEP-RE, added “We are extremely proud to have received this rating upgrade and of the signal it sends to our stakeholders across the continent. It reflects our hard work and commitment to drive greater insurance penetration across Africa, as mandated by our foundation by Common Market for Eastern and Southern Africa (COMESA).

“It is also fitting to receive this rating upgrade just a few days after we were all celebrating not only the 25^th anniversary of COMESA but also the official opening of our business park in Lusaka, Zambia, which is our biggest infrastructure investment as a company outside of our Nairobi headquarters.”

Rating Rationale

GCR explained “ZEP-RE’s nationale scale financial strength rating is a function of its exposure to comparatively riskier markets, counterbalanced by support through preferential treatment and healthy membership strength and diversity. The reinsurer’s mandate is fairly strong, given its position as an established reinsurer within the COMESA region, noting potential for improvement in status and diversity.”

Furthermore, GCR views “The financial profile to be sound, supported by solid capitalisation and strong liquidity, somewhat offsetting inherent earnings pressures.

“The operating environment assessment is partially diluted by the reinsurer’s geographical exposure to relatively riskier sovereigns, in line with its mandate. This notwithstanding, ZEP-RE's credit profile derives uplift from a fairly diversified membership base, coupled with continued preferential treatment in the form of mandatory cessions and tax exemptions.”

GCR added that ZEP-RE is the largest supranational reinsurer focused on the COMESA region, with gross premiums sourced from more than six significant markets (Kenya accounting for a majority 40% of gross premiums). In terms of the business mix, two lines of business contribute materially to net premiums. Earnings are viewed to be intermediate, evidencing a level of volatility.

The rating agency said that in FY18, ZEP-RE registered an underwriting deficit, driven by higher claims experience on the back of increased frequency of medium-sized claims as well as an increase in foreign exchange losses. GCR expects earnings to remain exposed to market related risks, given weaknesses in target markets. “Positively, the reinsurer’s retrocession protection is viewed to somewhat mitigate a degree of earnings volatility,” it found.

Outlook Statement

GCR said “The Stable Outlook reflects expectations that the reinsurer will maintain very strong capitalisation, strong liquidity and intermediate earnings. Furthermore, we also expect that the reinsurer will continue to gradually build its status in target markets over the medium term, while the business profile is not expected to change materially over the outlook horizon.”