Financial Times

Fitch Affirms SLIC’s national ratings
Fitch Ratings last week affirmed the ratings of Sri Lanka Insurance Corporation Ltd' s ("SLIC") ratings at National Insurer Financial Strength 'AA-(AA minus)(sri)' and National Long-term 'A+(sri)'. The Outlooks on the ratings are Stable.

Fitch said in a statement that it believed the efforts of SLIC's management to transform the company from a former state-owned monopolist to an efficient operator in an increasingly competitive Sri Lankan insurance market are showing signs of success. SLIC was privatised in May 2003 and sold to a consortium led by the Distilleries Company of Sri Lanka.

Although SLIC lost its long-standing position as the largest writer of premiums in the Sri Lankan market in 2004, more significant in terms of its rating have been the improvements in both profitability and capitalisation since 2002. This has been achieved by more profit-focused underwriting, reduction in headcount, increased automation and the rationalisation of existing, and the introduction of new, life and non-life policies. SLIC is being advised on reinsurance, underwriting, product development and actuarial issues by ING, the statement said.

“When Fitch first rated SLIC in May 2004, credit was given in the ratings for Fitch's belief in management's plan to turn the company around.
Much of that expectation has now been realised and SLIC has made good progress, especially in tackling the market-wide problem of high lapse rates on long-term policies. Nevertheless, there is still some way to go in the transformation of the company, especially in the roll-out of IT systems, improving financial reporting and eradicating audit qualifications,” it said.
SLIC's experience following the tsunami of December 2004 gives Fitch confidence in its financial strength and the depth of its reinsurance cover. Gross Tsunami-related losses were Rs 2. 2 billion of which Rs 1.2 billion (56%) had been paid by August 2005.

In addition, Rs 162 million of ex-gratia payments were made (mainly in respect of motor policies). Rs 2.0 billion or 92% of the gross loss had been claimed back from reinsurers, 54% of which had been received by August 2005. A further positive ratings factor is that early indications are that reinsurance terms and conditions are likely to remain broadly unchanged for 2006, notwithstanding the Tsunami-related claims of 2005.

In 2004, SLIC realised net income of Rs 632 million (2003: Rs 1.5 billion). The lower profitability in 2004 reflects a decline in realised capital gains to Rs 209 billion from Rs 1.3 billion in 2003 (Rs 800 million of which related to SLIC's sale of its 20% stake in Commercial Bank of Ceylon). In Fitch's view, SLIC's capital position continued to strengthen in 2004 and is now assessed as very strong in the context of the local market. At December 2004, SLIC received 31% of Sri Lankan non-life premiums (2003: 36%) and 27% of life premiums (2003: 31%).

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