ECONOMYNEXT – Sri Lanka’s insurance sector is expected by Fitch Ratings to stay stable despite uncertainty created by regulatory separation of life and non-life businesses while intense competition in the motor segment might make it unprofitable for some firms.
“ . . . most insurers will maintain stable financial fundamentals in 2016, supported by moderate sector growth,” Fitch said in a new report.
Fitch views the many regulatory changes as positive for the industry as they will promote efficient capital allocation, corporate governance, and better risk management.
Minimum regulatory capital has been increased to 500 million rupees from 100 million rupees, risk-based capital (RBC) will replace the current rules-based solvency regime by 2016, and insurance companies - with few exceptions - are required to list by 2016.
“Intense pricing competition in the motor segment is likely to hold the combined ratios in non-life above 100 percent,” Fitch Ratings said.
This would “put pressure on the financial performance of the more aggressive companies, while challenging the market share of others,” it said.
A combined ratio above 100 percent means an insurer is paying out more money in claims that it gets from premiums, although it can still make a profit, because the ratio does not include investment income.
Fitch said it expects economic growth and the still low insurance penetration in the market to support the growth of total gross written premiums (GWP).
“Fitch does not expect significant improvement in life penetration in the short term, due to the low disposable income of the population, and life premiums growth is likely to be moderate,” the rating agency said.
Fitch also expects non-life insurance business growth to slow as higher vehicle taxes may reduce new car registrations in 2016.
“ . . . most insurers will maintain stable financial fundamentals in 2016, supported by moderate sector growth,” Fitch said in a new report.
Fitch views the many regulatory changes as positive for the industry as they will promote efficient capital allocation, corporate governance, and better risk management.
Minimum regulatory capital has been increased to 500 million rupees from 100 million rupees, risk-based capital (RBC) will replace the current rules-based solvency regime by 2016, and insurance companies - with few exceptions - are required to list by 2016.
“Intense pricing competition in the motor segment is likely to hold the combined ratios in non-life above 100 percent,” Fitch Ratings said.
This would “put pressure on the financial performance of the more aggressive companies, while challenging the market share of others,” it said.
A combined ratio above 100 percent means an insurer is paying out more money in claims that it gets from premiums, although it can still make a profit, because the ratio does not include investment income.
Fitch said it expects economic growth and the still low insurance penetration in the market to support the growth of total gross written premiums (GWP).
“Fitch does not expect significant improvement in life penetration in the short term, due to the low disposable income of the population, and life premiums growth is likely to be moderate,” the rating agency said.
Fitch also expects non-life insurance business growth to slow as higher vehicle taxes may reduce new car registrations in 2016.
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