Fitch Ratings has affirmed Sri Lanka Insurance Corporation Limited's (SLIC) Insurer Financial Strength (IFS) rating at 'B+', with a negative outlook.
Earlier this year, Sri Lanka’s long-term local-currency issuer default rating was downgraded, which also affected SLIC, a 99.9% government-owned insurer. The current ratings are a reflection of the previous downgrade.
SLIC has established franchise and market position in the South Asian country, and is its largest state-owned insurer. However, it has sizeable investments in non-core subsidiaries and high equity exposure, weighing down its risk-based capital.
For the first half of 2016, gross written premiums grew by 14%, compared to 19% growth for the same period of 2015. The non-life division’s combined ratio worsened to 108%, compared to 94% last year. This was due to a high amount of claims following a strong storm in May, leading to widespread flooding and landslides. Gross claims rose by 63% but net claims went up by only 32% thanks to recoveries from reinsurance.
SLIC holds the highest market share in the non-life insurance sector, with 20% in 2015. It holds second place for life insurance at 19%. Its assets account for 36% of the entire Sri Lankan insurance industry.
As of now, SLIC is awaiting a government decision regarding a move to separate its life and non-life businesses. There are also plans to dispose some of its non-core investments.
The insurer may receive a ratings upgrade if it maintains its large market share, lowers its combined ratio below 95%, and lets go of non-core investments.
On the other hand, ratings may be further downgraded if combined ratio persists above 100% and if the Sri Lankan government’s ratings receive downgrades.
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