SLIC in discussions to segregate life and non-life businesses

1 October 2015 03:29 am Views - 1208

State-owned insurance giant Sri Lanka Insurance Corporation (SLIC) is currently mulling the segregation of its life and non-life businesses.

“The company is in discussions with the regulator on separating its life and non-life businesses to comply with new regulatory requirements,” Fitch said in the SLIC ratings update.

The Insurance Board of Sri Lanka (IBSL) regulations stated that all insurance companies must segregate their life and non-life businesses by January 2015 and list on the Colombo Stock Exchange by January 2016.

Meanwhile, Fitch affirmed SLIC’s insurer financial strength rating at ‘BB-’ with a stable outlook. The agency also affirmed the national insurer financial strength rating and national long-term rating at ‘AA(lka)’ with stable outlook.

Fitch said SLIC’s ratings reflected its well-established franchise and market position in Sri Lanka with the 99.9 percent state ownership and its importance to the government as the largest state-owned insurer.

However, it said that investments done with government direction have weakened the corporation.

“SLIC has significant investments in non-core subsidiaries that have been made in line with government policy and a high proportion of equities in its investment portfolio, which weaken SLIC’s risk-based capital,” Fitch said.

The rating agency added that SLIC was also exposed to high interest rate risk due to the asset and liability mismatches in the life business, which stem from the limited availability of long-term investments in the market.

In 2014, SLIC’s total comprehensive income increased to Rs.14.9 billion from Rs.7.5 billion year-on-year (YoY) driven mainly by fair-value gains in available-for-sale financial assets, which increased to Rs.11.2 billion from Rs.2.8 billion YoY.

Net profit in the non-life segment dropped to Rs.1.65 billion in 2014 from Rs.2.9 billion in 2013 due to poor underwriting results. This stemmed mainly from a one-time increase in provisions for third-party motor claims.

SLIC’s total premiums fell to Rs.20.7 billion in 2014 from Rs.21.35 billion in 2013 with the gross written premiums (GWP) in both life and non-life declining slightly.

SLIC’s profit retention dropped to 38 percent in 2014 from 78 percent YoY due to higher dividends to the government.

SLIC’s regulatory solvency ratio at end-June 2015 was 13.6x (end-2013:11.5x) for life and 3.4x (end-2013: 4.9x) for non-life. 

Fitch Ratings noted that these ratios were well above the regulatory required ratio of 1x for each business and compare well against that of its peers. 
RBC, which takes into account the high exposure to equity investments, was 202 percent for non-life and 448 percent for life, well above the regulatory minimum of 120 percent. 

Fitch expects the RBC for both life and non-life to be maintained above 200 percent in the medium to long term.

SLIC has an asset base of over Rs.150 billion. The company is the market leader in non-life insurance in Sri Lanka, accounting for 22 percent of GWP in the market. In the life segment, the company is the second-largest, accounting for 18 percent of market GWP in 2014.