Fitch affirms Sri Lanka Insurance at 'AA(lka)'Stable

Fitch Ratings Lanka has affirmed Sri Lanka Insurance Corporation Limited's (SLIC) National Insurer Financial Strength Rating and National Long-Term rating at 'AA(lka)'. The Outlook is stable. SLIC's ratings reflect its strong franchise and sound capitalisation levels, supported by ongoing high profitability and capital retention.

Regulatory solvency ratios for life and non-life insurance segments improved to 11.55x and 2.21x, at end-December 2011 from 7.73x and 2.11x in 2010, and compare well with peers.

However, Fitch notes that SLIC's risk-based capitalisation is weakened by its high equity exposure due to the associated market volatility.

The ratings also reflect Fitch's expectation of support from the Government given its 99.9 percent ownership in SLIC and the company's strategic importance as the largest state-owned insurer. However, the agency notes that timeliness of support could be limited given the state's own fiscal limitations. Fitch notes that SLIC has undertaken key strategic investments in line with Government policy in the past.

SLIC's somewhat aggressive investment strategy, as evidenced by large equity exposures, remains a rating concern due to associated profit volatility on some of these assets. Equity investments (excluding unit trust investments) accounted for 38 percent of book value assets in 2011 (2010: 37percent) and is likely to increase in the medium term in line with SLIC's investment plans.