Listed reinsurer Kenya Re is expected to face increased competition in the international market as more countries lock premiums within their borders by increasing mandatory retention rates.
The increased premium retention aimed to help countries curb capital flight while strengthening their domestic reinsurance capacity, has gained popularity across the globe and is being replicated in many countries, including Kenya.
Kenyan insurance companies will be required to compulsorily book 25 percent of their reinsurance premiums with the national reinsurer, Kenya Re, beginning September this year up from 20 percent, following regulatory amendments made last year.
Other countries are also creating their own reinsurance champions, a move that will see Kenya Re face more competition. The Kenyan firm boasts of collecting reinsurance premiums from more than 80 countries which are spread across Africa, Middle East and Asia.
“Kenya Re’s competitive position in these markets may face increasing pressure over the medium term due to the growing domestication of reinsurance premiums in several jurisdictions and rising retention capacities among cedants, both of which are expected to reduce demand for cross-border reinsurance support,” said GCR Ratings in a credit rating report on Kenya Re.
Countries in Africa, Middle East and Asia that have increased or are in the process of increasing their local cessation requirements include Algeria, Bangladesh, China, Egypt, Ethiopia, Gabon, India, Indonesia, Malaysia, Namibia, Nigeria, Pakistan, the Philippines, Saudi Arabia, Senegal, Sudan, Tanzania, Uganda and Zambia.
“There has been increasing cases of domestication of reinsurance business in some key markets, setting up of national reinsurance in countries where there were none, mergers and acquisitions, increasing retention capacity of direct underwriters reducing reinsurance premiums, creation of captive reinsurance companies which are new entrants in group’s target markets, unfavourable changes in legislation in some markets and price undercutting amongst competitors,” Kenya Re noted in its annual report.
Last year the company’s underwriting revenue declined to a five-year low of Sh17 billion which was 9.4 percent lower than the Sh18.8 billion booked in 2024.
“Reinsurance revenue declined by 9.4 percent reflecting lower premium volumes from certain external markets,” noted the rating agency.
Insurance analysts say the increased domestication has a negative side as it eliminates competition which could result in lack of innovativeness on the reinsurers who are assured of business from the mandatory cessations. It could also lower foreign investments in the reinsurance business as the market share being sought has been squeezed by the cessations.
GCR retained Kenya Re’s rating at AA+ with a stable outlook based on its strong capital levels, high liquidity metrics and robust financial profile. An AA+ rating signals a strong financial standing with ability to meet its credit obligations.
Kenya Re, which is entangled in boardroom wrangles, is majority owned by the government with a 60 percent stake.
The reinsurer has been barred by the courts from recruiting 12 senior management positions based on claims of non-transparency.
The positions of the CEO Hillary Wachinga and that of the general manager for finance and credit control Ruth Ngugi have been challenged in the courts on the basis of professional misconduct, intimidation and procurement flaws.
There are five reinsurers in the country with Kenya Re enjoying the largest market share. Others include Zep-Re, Continental Reinsurance, East Africa Reinsurance Company and Waica Reinsurance Kenya Limited.
