Best Affirms FSR for Kenya Reinsurance Corporation Ltd.

August 23, 2005

A.M. Best Co. has affirmed the financial strength rating of B+ (Very Good) and the issuer credit rating of “bbb-” of the Kenya Reinsurance Corporation Limited (Kenya Re) (Kenya). The outlook for both ratings is stable.

The ratings reflect the maintenance of Kenya Re’s excellent risk-adjusted capitalization, although an offsetting factor is the high concentration of real estate assets in the investment portfolio.

Kenya Re’s risk-adjusted capitalization remains excellent following an increase in paid-up capital to KES 1,500 million (USD 19.4 million) in 2004 (KES 1,000 million (USD 13.2 million) in 2003) through retained earnings. Kenya Re’s capital position is supportive of its international growth strategy, forecasted to be 19% in 2005. In A.M. Best’s opinion, Kenya Re’s investments are exposed to a high level of risk concentration as domestic real estate represents 53% of the total investment portfolio.

A.M. Best expects Kenya Re’s underwriting profit to improve in 2005 by 30% to approximately KES 453 million (USD 6.0 million), driven by the first time profit recognition of the company’s life portfolio as it adopts international accounting standards, although this will be largely offset by a deterioration in the non-life underwriting performance. A.M. Best expects the combined ratio to be approximately 90% in 2005 and 2006 (compared to 85% in 2004) as a result of the increasing competitive pressure in the Kenyan reinsurance market and rising acquisition costs due to the company’s increased presence in Africa (where business is mainly broker driven).

Gross premiums written from the company’s international portfolio increased by 39% in 2004 to KES 532 million (USD 7.0 million), accounting for 26% of Kenya Re’s total portfolio (18% in 2003).

A.M. Best expects the international portfolio to grow by 19% in 2005 and views international diversification as positive, given the restricted level of foreign investment and the likely removal of obligatory domestic treaty cessions to Kenya Re from 2007.

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