Fitch affirms Sri Lanka Insurance Corporation’s rating

Fitch affirms Sri Lanka Insurance Corporation’s rating

Fitch affirms Sri Lanka Insurance Corporation’s rating 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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