ECONOMYNEXT – Fitch Ratings has confirmed Sri Lanka Insurance Corporation General Limited’s ‘CCC+’ Insurer Financial Strength (IFS) rating and ‘A+(lka)’ National IFS rating.
“The ratings reflect SLIC General’s ‘Favourable’ company profile and high investment and asset risk, driven by exposure to sovereign-related investments,” the ratings agency said.
Fitch said it expects insurance losses arising from flooding linked to Cyclone Ditwah to have a limited impact on SLIC General’s credit profile.
The statement is reproduced below:
Fitch Affirms Sri Lanka Insurance Corp General’s ‘CCC+’ IFS and ‘A+(lka)’ National IFS
Fitch Ratings has affirmed Sri Lanka Insurance Corporation General Limited’s (SLIC General) ‘CCC+’ Insurer Financial Strength (IFS) Rating and ‘A+(lka)’ National IFS Rating. The Outlook on the National IFS Ratings is Stable. Fitch typically does not assign Outlooks to issuers with a rating of ‘CCC+’ or below.
The ratings reflect SLIC General’s ‘Favourable’ company profile and high investment and asset risk, driven by exposure to sovereign-related investments. The ratings also factor in the insurer’s adequate capital position and weak underwriting performance in recent periods.
Key Rating Drivers
‘Favourable’ Company Profile: Fitch regards SLIC General’s company profile as ‘Favourable’ because of a ‘Favourable’ business profile and ‘Neutral’ corporate governance compared with other insurers in Sri Lanka. The business profile is supported by its substantive business franchise, large domestic operations and wide distribution network. SLIC General’s market share rose to 19.4% in 2024 (2023: 18.9%), based on Fitch’s calculations using regulatory market data, making it the largest primary non-life insurer in Sri Lanka.
Limited Flood-Related Losses: Fitch expects insurance losses arising from flooding linked to Cyclone Ditwah to have a limited impact on SLIC General’s credit profile. Non-motor losses are largely mitigated by the company’s low retention levels and strong reinsurance protection, while exposure to catastrophe losses remains constrained by excess-of-loss arrangements. Higher motor claims and reinsurance reinstatement premiums may pressure underwriting profitability in 2025, but these are manageable within existing earnings and capital buffers.
Improving Underwriting: We expect underwriting profitability to improve gradually from current levels, supported by growth in the lower-claim motor and fire/engineering segments. However, near-term pressure on underwriting profitability will persist due to flood-related losses and also the impact of the government’s directive to remit 100% of motor insurance strike, riot, civil commotion and terrorism (SRCCT) premiums to another state-owned insurer, National Insurance Trust Fund Board (BBB(lka)/Stable).
SLIC General’s combined ratio rose slightly to 102% in 1H25 (2024: 100%), driven by an increase in the expense ratio to 48% from 43% in 2024. The combined ratio also improved in 2024 (2023: 106%) on reduced claims in the medical and motor segments. Underwriting profitability has been weak since 2022, driven by inflationary pressures, rising administrative costs and increased claim costs due to higher spare part prices and medical costs from the depreciation of the Sri Lankan rupee. The three-year average combined ratio (2022-2024) was 104%.
Motor Drives Premium Growth: Gross written premiums (GWP) grew by 10% in 1H25, driven primarily by 18% growth in motor insurance following the relaxation of motor imports in 2025. SLIC General is the market leader for motor insurance in the non-life insurance industry. The GWP mix remained concentrated in motor insurance at 58% (non-motor 42%) in 1H25, although management aims to increase the contribution from non-motor lines such as fire and engineering for earnings diversification.
Satisfactory Regulatory Capital Position: The regulatory risk-based capital ratio stood at 277% at end-December 2024 and 298% at end-1H25, well above the regulatory minimum of 120% and on a par with other non-life insurers. However, we assessed SLIC General’s Fitch Prism Global score as ‘Weak’ at end-2024 due to its high investment risk.
High Exposure to Sovereign Assets: Sri Lanka’s weak sovereign credit quality continues to exacerbate the investment and liquidity risk of domestic insurers such as SLIC General, despite the recent sovereign upgrade in December 2024. SLIC General’s Fitch-calculated risky-asset ratio was high at 326% at end-1H25 (2024: 371%). We score its investment and asset risk at ‘ccc+’ on the international scale, reflecting its high exposure to sovereign and sovereign-related assets.
The investment portfolio remains dominated by fixed-income securities, comprising mostly government securities and corporate debt, and equity investments. Its foreign-currency assets, mostly bank deposits and unit trust investments, were about 13% of invested assets at end-1H25. SLIC General’s former non-core holdings are held by investment holding company Sri Lanka Insurance Corporation.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade IFS Rating
– Significant weakening in SLIC General’s business profile, for instance due to a weaker franchise, smaller operating scale or higher business risk;
– 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 General’s investment portfolio.
National IFS Rating
– Sustained weakness in financial performance;
– Deterioration in the risk-based capital ratio to below 200% 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 General’s investment portfolio.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade IFS Rating
– Further improvement in the company profile, including a greater operating scale and stronger market position;
– Significant reduction in SLIC General’s investment and asset risks for a sustained period.
National IFS Rating
– An improvement in the risk-based capital ratio to well above 260% while maintaining the combined ratio at below 98%;
– Further improvement in the company profile, including a greater operating scale and stronger market position;
– Significant reduction in SLIC General’s investment and asset risks for a sustained period.