Financial Times

Eagle Insurance creates 'resilience reserve' for disaster cover
Eagle Insurance Company Ltd., whose profits fell by 20 percent last year owing to tsunami claims, introduced a resilience reserve, which its managing director Chandra Jayaratne called a market first. This reserve of Rs. 195 million is to be created over a three-year period, he told The Sunday Times FT.

The firm has already provided for one-third of this amount and the reserve is expected to withstand any market changes. It will give the company an added margin for catastrophes like the December 26 tsunami and help cushion the impact of such natural disasters on the firm's finances.

Eagle Insurance will be looking at a new sustainable growth path under the theme "Growth towards Freedom" in the year 2005, according to Jayaratne. "We will be replacing the old in-house developed life system with one of the latest versions of the international market," he said. The system is of Malaysian origin and adheres to international standards.

The directors have also taken significant steps to strengthen the solvency and financial stability of the company, according to Jayaratne. "Our solvency is quite high," he said, adding that unlike competitors who search for cash flow underwriting, Eagle always kept abreast with underwriting best practices and re-insurance security expectations of clients. The company also has an Incurred But Not Reported (IBNR) reserve, which is one of the internationally benchmarked prudential margins.

"I don't think anyone in Sri Lanka has an actuary valued IBNR reserve except American International Group (AIG)," he said. In addition, Eagle has substantially increased its catastrophe covers. "We increased our catastrophe covers by 50 percent, one of the highest in the country at the time," Jayaratne said.

The company said in its annual report that the Eagle brand name has been valued at Rs. 559 million by the Lanka Monthly Digest (LMD) magazine, the seventh highest in the index. Eagle recorded a profit after tax of Rs.254 million for 2004, a decline of 20 percent from Rs. 318 million in 2003. Hemaka Amarasuriya, chairman of Eagle, in the annual report attributed the fall to the impact of the December 26 tsunami catastrophe.

However, profits for the year adjusted for tsunami special expenses, reflect an increase of eight percent from 2003. Jayaratne said in the annual report that the expected growth in the fund management arena was not realised because the government deferred pension reforms, which were planned to be effective in mid-2004. He explains that Eagle has recorded a marginal decline in volume due to their focus on accepting risks with responsibility, adoption of good underwriting practices and assurance of effective re-insurance security.

Eagle will also be initiating a new building project, which would bring about a more efficient service by bringing all the offices to a central location. "We are scattered in several buildings right now," he said, adding that consolidating the services would bring about change management initiatives to ensure the growth of the company on a long term basis.

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