Fitch ratings confirms Stable Outlook for 7 Lankan insurers, lifts Negative Watch

Fitch Ratings has affirmed the National Insurer Financial Strength (IFS) ratings of seven Sri Lankan insurers and removed them from Rating Watch Negative (RWN). The Outlook is Stable.
The seven insurers are: Sri Lanka Insurance Corporation Limited (SLIC) at ‘A(lka)’ , Continental Insurance Lanka Limited at ‘A-(lka)’ , HNB Assurance PLC at ‘A-(lka)’ , HNB General Insurance Limited at ‘A-(lka)’ , People’s Insurance PLC at ‘A-(lka)’ , Co-operative Insurance Company PLC at ‘BB(lka)’ and Construction Guarantee Fund at ‘BB(lka)’.

Fitch has also downgraded National Insurance Trust Fund Board’s (NITF) National IFS Rating to ‘BBB(lka)’ from ‘BBB+(lka)’ and removed it from RWN. The Outlook is Stable. 
“The removal of the RWN on the insurers’ national ratings reflects our view that near-term investment and liquidity risks have been reduced substantially, evident from the upgrade of Sri Lanka’s Long-Term Local-Currency Issuer Default Rating (IDR) to ‘CCC-’ from ‘RD’ and the subsequent removal of the RWN on Fitch-rated banks,” the rating agency said.

Fitch said  NITF’s one-notch rating reflects the insurer’s inability to renew its external reinsurance arrangements, resulting in weaker risk-management practices.
“NITF is the sole domestic reinsurer and receives 30 percent of reinsurance cessations from all domestic non-life operators. It has faced continued delays in renewing its reinsurance contracts and currently does not have any retrocession cover for its inwards reinsurance business. This, alongside continued capital weakness in certain business lines, exposes NITF’s capital and earnings to greater volatility,” Fitch noted.

Meanwhile, the rating agency noted that the investment and liquidity risks of Sir Lankan insurers have eased significantly as the government successfully restructured its local currency sovereign debt without any implications on the holdings of treasury securities of banks and insurers.
Fitch also expects the pressure on regulatory capital of insurers to ease alongside the alleviated investment and liquidity risks.