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| Sunday, 16 May 2004 |
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| News Business Features Editorial
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First by a Sri Lankan insurance company: Outlook on ratings stable Fitch Ratings, the international rating agency, last week assigned Sri Lanka Insurance Ltd (SLI) a National Insurer Financial Strength Rating of 'AA-(sri)' (AA minus (sri)) and a National long-term rating of 'A+(sri)'. The outlooks on the ratings which are the first by a Sri Lankan Insurance company are stable. The Natioanl insurer Financial strength rating denotes very strong financial stregth relative to all other insurance entities on the basis of SLI's ability to meet policyholder obligations and provide policyholder benefits. The National Long term rating denotes SLI's high credit quality and a low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. However this capacity may change in circumstances of economic conditions. The ratings AA- and A+ confirm that claims of policyholders would get first preference over other creditors in the event of liquidation. SLI Director Damien Fernando said" We are proud of the rating as we are the first insurer to be rated in Sri Lanka. Expect value for money products and not business gimmicks." Fitch ratings Sri Lanka CEO Alistair Corera said that the decision of SLI to go for a rating was a bold and proactive step while it was trend setting as well. Since the Fitch Sri Lankan office didn't have the required expertise to rate an insurance company a team of specialists from London was involved in the rating of SLI. He said that the Insurance Board of Sri Lanka monitors every insurance company and since SLI is rated, Fitch too would keep a close watch on the company. Before 1986, SLI was the Sri Lankan government monopoly insurer. The Sri Lankan insurance sector was liberalized in 1987 and opened up to private competition. SLI was privatized in May 2003 and sold to a consortium led by the Distilleries Company of Sri Lanka. The new owners face great challenges in transforming the company to enable it to compete effectively in the increasingly competitive Sri Lankan insurance market. Although the Sri Lankan market leader in terms of premiums written in 2003, SLI has been losing market share to its rivals since 1986. Its recent profitability has been mixed and the audit reports on its two most recent sets of accounts were qualified. The processing of premiums and claims are still largely carried out manually, which has led to SLI needing to employ more staff. Staff numbers were also previously inflated for political reasons during the period of public ownership. SLI also faces negative spreads on a significant proportion of its life policies following the decline in Sri Lankan interest rates. More positively, Fitch believes that the new management of SLI is taking the correct steps to rectify these problems. Management is being advised by ING on reinsurance, underwriting, product development and actuarial issues. Automated systems are being rolled out across the firm between 2003 and 2005. SLI is also rationalising the number of life products it offers and focusing its sales on more affluent sections of the population. SLI furthermore continues to enjoy the leading market position in Sri Lanka with a strong brand and a widespread branch network. Fitch considers SLI's capital to be strong within the context of the Sri Lankan market. Moreover, SLI has little catastrophe exposure, historically sound reinsurance cover and a conservative investment strategy. Fitch expects competition to intensify in the Sri Lankan market, especially for government business, and believes that SLI's market share could decline further in the next two or three years, before the impact of the new management's reforms feeds through to results. In the longer term, however, Fitch believes the reforms that management is initiating will bear fruit. The agency also sees good growth prospects and expects SLI to reclaim some of its lost market share, especially with the involvement of ING. Increased competition in the market, especially for government business, may, however, reduce profit margins, although this could be offset by SLI realising expense efficiencies and SLI writing government business at more commercial rates than in the past. |
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