ECONOMYNEXT – Fitch Rankings has confirmed Sri Lanka Insurance coverage Company Common Restricted’s ‘CCC+’ Insurer Monetary Power (IFS) score and ‘A+(lka)’ Nationwide IFS score.
“The rankings replicate SLIC Common’s ‘Beneficial’ firm profile and excessive funding and asset danger, pushed by publicity to sovereign-related investments,” the rankings company mentioned.
Fitch mentioned it expects insurance coverage losses arising from flooding linked to Cyclone Ditwah to have a restricted influence on SLIC Common’s credit score profile.
The assertion is reproduced under:
Fitch Affirms Sri Lanka Insurance coverage Corp Common’s ‘CCC+’ IFS and ‘A+(lka)’ Nationwide IFS
Fitch Rankings has affirmed Sri Lanka Insurance coverage Company Common Restricted’s (SLIC Common) ‘CCC+’ Insurer Monetary Power (IFS) Score and ‘A+(lka)’ Nationwide IFS Score. The Outlook on the Nationwide IFS Rankings is Secure. Fitch usually doesn’t assign Outlooks to issuers with a score of ‘CCC+’ or under.
The rankings replicate SLIC Common’s ‘Beneficial’ firm profile and excessive funding and asset danger, pushed by publicity to sovereign-related investments. The rankings additionally issue within the insurer’s satisfactory capital place and weak underwriting efficiency in current intervals.
Key Score Drivers
‘Beneficial’ Firm Profile: Fitch regards SLIC Common’s firm profile as ‘Beneficial’ due to a ‘Beneficial’ enterprise profile and ‘Impartial’ company governance in contrast with different insurers in Sri Lanka. The enterprise profile is supported by its substantive enterprise franchise, massive home operations and vast distribution community. SLIC Common’s market share rose to 19.4% in 2024 (2023: 18.9%), primarily based on Fitch’s calculations utilizing regulatory market knowledge, making it the most important major non-life insurer in Sri Lanka.
Restricted Flood-Associated Losses: Fitch expects insurance coverage losses arising from flooding linked to Cyclone Ditwah to have a restricted influence on SLIC Common’s credit score profile. Non-motor losses are largely mitigated by the corporate’s low retention ranges and robust reinsurance safety, whereas publicity to disaster losses stays constrained by excess-of-loss preparations. Larger motor claims and reinsurance reinstatement premiums might strain underwriting profitability in 2025, however these are manageable inside present earnings and capital buffers.
Bettering Underwriting: We anticipate underwriting profitability to enhance step by step from present ranges, supported by progress within the lower-claim motor and hearth/engineering segments. Nonetheless, near-term strain on underwriting profitability will persist on account of flood-related losses and in addition the influence of the federal government’s directive to remit 100% of motor insurance coverage strike, riot, civil commotion and terrorism (SRCCT) premiums to a different state-owned insurer, Nationwide Insurance coverage Belief Fund Board (BBB(lka)/Secure).
SLIC Common’s mixed ratio rose barely to 102% in 1H25 (2024: 100%), pushed by a rise within the expense ratio to 48% from 43% in 2024. The mixed ratio additionally improved in 2024 (2023: 106%) on diminished claims within the medical and motor segments. Underwriting profitability has been weak since 2022, pushed by inflationary pressures, rising administrative prices and elevated declare prices on account of larger spare half costs and medical prices from the depreciation of the Sri Lankan rupee. The three-year common mixed ratio (2022-2024) was 104%.
Motor Drives Premium Development: Gross written premiums (GWP) grew by 10% in 1H25, pushed primarily by 18% progress in motor insurance coverage following the comfort of motor imports in 2025. SLIC Common is the market chief for motor insurance coverage within the non-life insurance coverage trade. The GWP combine remained concentrated in motor insurance coverage at 58% (non-motor 42%) in 1H25, though administration goals to extend the contribution from non-motor traces equivalent to hearth and engineering for earnings diversification.
Passable Regulatory Capital Place: The regulatory risk-based capital ratio stood at 277% at end-December 2024 and 298% at end-1H25, nicely above the regulatory minimal of 120% and on a par with different non-life insurers. Nonetheless, we assessed SLIC Common’s Fitch Prism World rating as ‘Weak’ at end-2024 on account of its excessive funding danger.
Excessive Publicity to Sovereign Belongings: Sri Lanka’s weak sovereign credit score high quality continues to exacerbate the funding and liquidity danger of home insurers equivalent to SLIC Common, regardless of the current sovereign improve in December 2024. SLIC Common’s Fitch-calculated risky-asset ratio was excessive at 326% at end-1H25 (2024: 371%). We rating its funding and asset danger at ‘ccc+’ on the worldwide scale, reflecting its excessive publicity to sovereign and sovereign-related property.
The funding portfolio stays dominated by fixed-income securities, comprising largely authorities securities and company debt, and fairness investments. Its foreign-currency property, largely financial institution deposits and unit belief investments, had been about 13% of invested property at end-1H25. SLIC Common’s former non-core holdings are held by funding holding firm Sri Lanka Insurance coverage Company.
RATING SENSITIVITIES
Components that Might, Individually or Collectively, Result in Damaging Score Motion/Downgrade IFS Score
– Vital weakening in SLIC Common’s enterprise profile, as an example on account of a weaker franchise, smaller working scale or larger enterprise danger;
– Rising funding and asset dangers, together with a downgrade of the rankings of economic establishments or the sovereign, which account for a big share of SLIC Common’s funding portfolio.
Nationwide IFS Score
– Sustained weak point in monetary efficiency;
– Deterioration within the risk-based capital ratio to under 200% for a sustained interval;
– Rising funding and asset dangers, together with a downgrade of the rankings of economic establishments or the sovereign, which account for a big share of SLIC Common’s funding portfolio.
Components that Might, Individually or Collectively, Result in Constructive Score Motion/Improve IFS Score
– Additional enchancment within the firm profile, together with a higher working scale and stronger market place;
– Vital discount in SLIC Common’s funding and asset dangers for a sustained interval.
Nationwide IFS Score
– An enchancment within the risk-based capital ratio to nicely above 260% whereas sustaining the mixed ratio at under 98%;
– Additional enchancment within the firm profile, together with a higher working scale and stronger market place;
– Vital discount in SLIC Common’s funding and asset dangers for a sustained interval.
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