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Sunday July 14th, 2024

Sri Lanka insurance premiums to fall amid import controls as new business sought: Fitch

ECONOMYNEXT – Sri Lanka’s general insurance premiums may fall as motor business stalls amid import controls and insurers seek new areas to grow in weak economic conditions, Fitch Ratings said.

Economic difficulties are also forcing customer to drop comprehensive coverage.

“Fitch believes that new business premiums from motor insurance – which accounted for around 60 percent of the non-life insurance industry’s gross premiums – will contract in 2020 with the reduction in new vehicle registrations,” the rating agency said.

“We believe the release of the limited new-vehicle stocks into the market will be insufficient to offset the contraction in new business premiums.

“In addition, some policyholders are switching to third-party insurance from comprehensive coverage and allowing policies to lapse due to the economic stress caused by the coronavirus pandemic, which will impede non-life insurers’ business growth.

Total non-life premiums had fallen by 8 percent and motor insurance was down 4 percent in the first half of 2020 from a year earlier from a year earlier, based on regulator data.

Growth in the industry’s motor premiums slowed to 2 percent in 2019 from 16 percent amid import controls imposed after liquidity injections pressured the currency.

In 2020 many imports including vehicles were halted after money printing in March and April drover the rupee close to 200 to the US dollar.

There have been calls to reform the central bank to curb its domestic operations and end monetary instability and currency collapse.

Private credit has since turned negative, compressing consumption and imports despite high levels of excess liquidity.

Non-life insurers will speed up their expansion into non-motor business lines to counter the impact from lower motor insurance sales, Fitch said.

“Some insurers already target to increase business exposure to non-motor lines, such as the fire, property, health and micro insurance classes,” Fitch said.

“However, we believe that the expansion will only partly offset the premium loss from motor insurance.”

The shock from import controls comes as underwriting profitability was already down for non-motor insurance.

“The three-year average claims ratio for non-motor lines was 77 percent, higher than the 61 percent for motor insurance business, which is generally aided by benefits from economies of scale,” Fitch said.

Fitch said regulatory capital of insurers could also come under pressure if profits fall, but average risk based capital ratio was 238 percent for the sector above the 120 percent required.

The regulator had also halted dividend payouts.

The full statement is reproduced below:

Competition in Sri Lanka Non-Life Sector to Rise as Premiums Fall

Mon 14 Sep, 2020 – 21:00 ET

Fitch Ratings-Kansas City-14 September 2020: Price competition among non-life insurers in Sri Lanka is likely to intensify as a ban on auto imports and an economic downturn hinder premium growth, Fitch Ratings says.

Fitch believes that new business premiums from motor insurance – which accounted for around 60% of the non-life insurance industry’s gross premiums – will contract in 2020 with the reduction in new vehicle registrations.

We believe the release of the limited new-vehicle stocks into the market will be insufficient to offset the contraction in new business premiums.

In addition, some policyholders are switching to third-party insurance from comprehensive coverage and allowing policies to lapse due to the economic stress caused by the coronavirus pandemic, which will impede non-life insurers’ business growth.

Total non-life premiums and premiums from motor insurance fell by 8% and 4% yoy, respectively in 1H20, data from the Insurance Regulatory Commission of Sri Lanka (IRCSL) showed.

Growth in the industry’s motor premiums slowed to 2% in 2019 from 16% in 2016 due to the government’s efforts to limit the outflow of foreign exchange by curtailing vehicle imports.

The recent ban on auto imports came in the wake of the pandemic as the government tried to control currency depreciation by supporting foreign-currency reserves.

Policymakers have recently indicated that this ban may continue at least over the near term given the economic stress caused by the pandemic.

The sluggish market growth will exacerbate competition among insurers. Underwriting profitability in Sri Lanka’s non-life industry has been dragged down by high price competition and the industry’s combined ratio has been above 100% in recent years.

We also expect the industry claims ratio for non-motor lines to remain high until insurers achieve meaningful growth in the non-motor premium base. The three-year average claims ratio for non-motor lines was 77%, higher than the 61% for motor insurance business, which is generally aided by benefits from economies of scale.

Fitch expects the constrained top-line growth, potential amplification of price competition as well as lower investment returns to put pressure on non-life insurers’ earnings, which will be softened by the temporary reduction in claims during the lockdown period, particularly from motor insurance.

Insurers’ regulatory capital positions could also come under pressure from potential stress in earnings, although the impact may be partly offset by a possible reduction in liability-risk capital charges from lower motor claims and IRCSL’s direction to insurers to suspend dividend distributions until further notice.

The non-life industry had satisfactory capital buffers, with an average risk-based capital ratio of 238% at end-June 2020, above the 120% regulatory minimum.

Fitch expects the non-life insurers to expedite their expansion into non-motor business lines to counter the impact from lower motor insurance sales. Some insurers already target to increase business exposure to non-motor lines, such as the fire, property, health and micro insurance classes. However, we believe that the expansion will only partly offset the premium loss from motor insurance.

Insurers’ expansion into non-motor lines will likely be gradual given the weaker economic environment, which could keep the near-term demand for less-essential insurance products in check.

Non-motor insurance lines’ contribution to industry non-life gross premiums rose marginally to 41% in 2019 from 38% in 2016.

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Ex-US President Trump shot at in campaign rally

ECONOMYNEXT- Republican nominee to the upcoming polls and former US President Donald Trump has been shot during a campaign rally, media reports said.

The bullet grazed the ear of Trump, who is reported to be doing well.

The gunman was shot and killed by secret service snipers within second of firing the shots at Trump.

At least one civilian was killed reports said.

Television footage showed blood in Trumps ear.

As he was hustled out of the venue by Secret Service officials Trump was seen shaking his fist in the air. (Colombo/July14/2024)

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UNESCO DG to discuss archaeological endeavours in Anuradhapura, Sri Lanka: President

ECONOMYNEXT – Sri Lanka’s president has said that he will discuss initiatives for long-term archaeological endeavours in the Anuradhapura city with visiting UNESCO Director General Audrey Azoulay.

Azoulay will visit Sri Lanka from July 16-19 and take part at the celebration of the 75th Anniversary of Sri Lanka’s membership of UNESCO at the Nelum Pokuna Theatre in Colombo.

She will also travel to UNESCO World Heritage Sites around the island, the Ministry of Foreign Affairs said.

“I have invited the Director General of UNESCO to visit Sri Lanka and discuss initiatives for long-term archaeological endeavours in the Anuradhapura city. Several universities overseas have shown interest in supporting us for these activities, and we are moving forward with their collaboration,” Ranil Wickremesinghe said.

“Anuradhapura boasts a rich history spanning over a millennium, once renowned as a hub of trade and economics. Preserving and exploring this ancient city’s archaeological treasures remains a significant endeavour.”

“New archaeological efforts in the Anuradhapura district are now imperative,” Wickremesinghe said during a ceremony to inaugurate a 150-kilowatt solar power system installed by the LTL Group at the Sri Maha Bodhiya premises in Anuradhapura on Saturday (13).

Wickremesinghe pointed out that UNESCO has undertaken extensive archaeological projects in Angkor Thom in Cambodia, and Luang Prabang in Laos.

“However, we have not taken the necessary steps to implement these activities in Anuradhapura city. Therefore, I have advised both the Department of Archaeology and the Cultural Triangle to undertake these initiatives.”

These efforts are part of a comprehensive program aimed at establishing Anuradhapura as a globally renowned city, Wickremesinghe said.

While Sigiriya has gained international fame, Sri Lanka has not adequately highlighted Anuradhapura’s historical significance as a major trade and economic center in the past, the president pointed out.

“Cities like Tanjore (Thanjavur), Madurai, and Sanchipuram are often discussed, yet Anuradhapura, the fourth city, has been overlooked. Therefore, it is crucial to develop Anuradhapura city.”

As part of these initiatives, preparations are underway to establish new hotels in Anuradhapura, which will contribute significantly to its development, Wickremesinghe said. (Colombo/Jul13/2024)

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Government committed to improving living conditions in Jaffna: Sri Lanka PM

ECONOMYNEXT – Sri Lanka’s prime minister, who is in Jaffna “to monitor the progress” and “get a little feedback” has said the government is committed to improving living conditions of the people in the northern peninsula.

“This government is dedicated to improving the living conditions of the Jaffna Peninsula,” Dinesh Gunawardena told a Jaffna District Coordinating Committee meeting on Friday, according to a statement by his media division.

“In order to increase the living conditions, we have embarked on an increase in most of the expenditure needed by the departments, and also special allocations for rural and urban development in the local government area.”

Nationalist Gunawardena met with Tamil politicians at the Jaffna Divisional Secretariat Office and participated in the distribution of rice and egg incubators for low income families.

“A special privilege to be with you all, in order to monitor the progress made by all of you, as well as to get a little feedback where we stand today in relation to the reports given.”

Gunawardena joins a string of leading political figures who have visited the north ahead of upcoming polls.

The government was, he said, “committed to improve the services and living conditions, therefore, to provide the necessary infrastructure for developments, which means much to your area.”

The prime minister said he appreciated the efforts of farmers because “farmers are all private sector, I would say. Let us not forget, farmers are all in the private sector, either in the ownership or in the tenancy. They are private contributors to the national development of the economy.”

The poverty numbers are “fairly managed” in the country. Gunawardena said, pointing out that poverty was a key problems in any economy. “Any country, you would agree with me, the richest country, in the United States even, food stamps have been given. So all economies the world are going through difficult situations in relation to the poor.

“We have to look after the poor especially in these remote villages of the Northern Province…”

Minister Douglas Devanada, MPs M A Sumanthiran, Angajan Ramanathan, C Vigneshwaran, Dharmalingam Siddharthan, and other officials participated in the meeting. (Colombo/Jul13/2024)

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