24 April 2023 08:34 am Views - 322
Fitch Ratings has downgraded Co-operative Insurance Company PLC’s (CICPLC) National Insurer Financial Strength (IFS) Rating to ‘BB(lka)’ from BBB(lka)’ and maintained the Rating Watch Negative (RWN).
The downgrade followed the recent restrictions imposed by the Insurance Regulatory Commission of Sri Lanka (IRCSL) limiting CICPLC’s ability to carry out insurance operations.
The multiple-notch downgrade reflects our ‘Least Favourable’ corporate governance ranking for CICPLC following the recent restrictions on the insurer’s business activities after the regulator found governance shortcomings.
Our assessment of CICPLC’s governance structure and corporate transparency is now weaker, and we believe that this development may affect the insurer’s franchise and competitive positioning, which may then result in a weaker business profile,”Fitch said.
On 11 April 2023, the IRCSL suspended CICPLC’s registration to carry out insurance business as the insurer failed to maintain the composition of the board of directors in accordance with the company’s articles of association.
CICPLC’s announcement says the suspension will be in force until 2 May 2023, during which it will not be able to acquire or renew business. The company says that it will be able to continue servicing its existing customers.
Trading of CICPLC’s shares on the Colombo Stock Exchange was suspended on 18 April 2023 as the company failed to comply with the listing rules that require the chairman or one member of the audit committee to be a member of a professional accounting body.
Meanwhile, Fitch said the RWN reflects the uncertainty regarding the resolution of the governance issues and restrictions as well as the potential impact on the CICPLC’s franchise and business volume.
“The RWN also continues to reflect the potential for the insurer’s creditworthiness to deteriorate relative to other entities on the Sri Lankan National Rating scale amid high investment and liquidity risks, pressure on its regulatory capital position and a weaker financial performance outlook.
The heightened investment risks and earnings pressure amid the weak operating environment could affect the insurer’s regulatory capital profile,” the rating agency said.