ECONOMYNEXT – Sri Lanka Insurance Corporation Life Limited (SLIC Life) has been assigned a ‘CCC+’ Insurer Financial Strength (IFS) rating and an ‘A+(lka)’ national IFS rating by Fitch, with a stable outlook.
“The ratings reflect SLIC Life’s ‘Favourable’ company profile, and high investment and asset risks, which are driven by exposure to sovereign-related investments,” Fitch said.
The ratings also take into consideration the life insurer’s satisfactory regulatory capital position, which compares favourably with other domestic life insurers in the country, it said.
The full statement is reproduced below:
Fitch Assigns Sri Lanka Insurance Corp Life ‘CCC+’ IFS and ‘A+(lka)’ National IFS Ratings
Fitch Ratings – Sydney/Colombo – 28 Feb 2025: Fitch Ratings has assigned Sri Lanka Insurance Corporation Life Limited (SLIC Life) a ‘CCC+’ Insurer Financial Strength (IFS) Rating and an ‘A+(lka)’ National IFS Rating. The Outlook is Stable.
The ratings reflect SLIC Life’s ‘Favourable’ company profile, and high investment and asset risks, which are driven by exposure to sovereign-related investments. The ratings also take into consideration the life insurer’s satisfactory regulatory capital position, which compares favourably with other domestic life insurers in the country.
Key Rating Drivers
‘Favourable’ Company Profile: Fitch regards SLIC Life’s company profile as ‘Favourable’ because of a ‘Favourable’ business profile and ‘Neutral’ corporate governance compared with other insurers in Sri Lanka. SLIC Life’s business profile is supported by its long operating history, substantive business franchise and wide distribution network. SLIC Life was the third-largest life insurer in Sri Lanka with a gross premium market share of 13.8% at end-2023 (end-2022: 15.4%), based on the latest industry data.
Neutral Ownership; Life Focus: We consider ownership neutral to SLIC Life’s ratings. In February 2024, SLIC Life’s parent company, Sri Lanka Insurance Corporation Limited (SLIC) – ultimately owned by the government of Sri Lanka (Issuer Default Rating: CCC+) – completed the legal separation of its life and non-life segments by establishing two fully owned subsidiaries: SLIC Life and Sri Lanka Insurance Corporation General Limited (SLIC General).
This followed approval from the Insurance Regulatory Commission of Sri Lanka. Before the legal split, SLIC had been operating its life and non-life business separately since the regulator first mandated composite insurers to split their operations in 2015.
Improved Investment and Liquidity Risks: We believe that SLIC Life’s investment and liquidity risks, which are like those of other domestic insurers, have eased following improvement in the sovereign’s credit profile. Fitch upgraded Sri Lanka’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to ‘CCC+’ in December 2024 following the completion of its international sovereign bond restructuring and an improved outlook for economic indicators.
Risky asset exposure decreased after transferring large non-core equity investments from life insurance business to SLIC before the separation of the life and non-life businesses. The life insurer’s Fitch-calculated risky-asset ratio was high at 491% at end-1H24, indicating vulnerability to weakening in the sovereign’s credit quality. Its invested assets were mainly government securities, corporate debt, equity securities and term deposits. SLIC Life has limited exposure to foreign-currency obligations, and foreign-currency assets are about 1% of total investments.
Satisfactory Regulatory Capital Position: SLIC Life’s RBC ratio was 646% at end-1H24 (2023: 425% for SLIC’s life segment), well above the regulatory minimum of 120% and compares favourably with that of other life insurers in the country. The increase in the RBC ratio was driven by the decrease in concentration and market risk charges in 1H24. SLIC Life’s Fitch Prism Global score was ‘Somewhat Weak’ at end-1H24 due to its high investment risks.
Premium Growth Pick-Up: Gross written premium growth rebounded in 1H24 (February-June 2024), rising by 18%, led by a 34% increase in new business premiums and a 19% rise in renewal premiums. This followed sluggish growth in 2022-2023, when gross premiums fell by 5% in 2022 and rose modestly by 1% in 2023. Before the legal separation, the company’s life segment reported an average ROE of 18% over 2021-2023, supported by investment income during this period, while its pretax ROA averaged 2%.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
IFS Rating
– Significant weakening in SLIC Life’s business profile, for instance, due to a weaker franchise, operating scale or business risk profile;
– Rising investment and asset risks, including a downgrade of the ratings of financial institutions or the sovereign, which account for a large share of SLIC Life’s investment portfolio.
National IFS Rating
– Prolonged weakness in financial performance;
– A deterioration in the RBC ratio to below 300% for a sustained period;
– Rising investment and asset risks, including a downgrade of the ratings of financial institutions or the sovereign, which account for a large share of SLIC Life’s investment portfolio.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
IFS Rating and National IFS Rating
– Further improvement in the company profile, including a greater operating scale and a stronger market positioning;
– Significant reduction in SLIC Life’s investment and asset risks for a sustained period.
Date of Relevant Committee
18 February 2025
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of ‘3’, unless otherwise disclosed in this section. A score of ‘3’ means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch’s ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch’s ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores (Colombo/Feb28/2025)