It was the market leader in non-life insurance taking 23 percent of gross written premium and was the second largest in the non-life category.
But the strengths were balanced by significant investments in non-core subsidiaries made according to state directions and a large equity portfolio, which weakened SLIC risk-based capital.
The full statement is reproduced below:-
Fitch Affirms Sri Lanka Insurance Corporation at IFS 'BB-'/Stable
Fitch Ratings-Colombo/Hong Kong-25 March 2014: Fitch Ratings Lanka has affirmed Sri Lanka Insurance Corporation Limited's (SLIC) Insurer Financial Strength rating (IFS) at 'BB-' with a Stable Outlook. The agency has also affirmed the National Insurer Financial Strength Rating and National Long-Term rating at 'AA(lka)' with a Stable Outlook.
KEY RATING DRIVERS
The ratings reflect SLIC's solid franchise and market position; and healthy capitalisation supported by sustained profitability and satisfactory profit retention. Management expects the three-year average combined ratio for its non-life business to be less than 90% at end-2013, which Fitch views positively amid the competitive market conditions in Sri Lanka.
Regulatory solvency at end-2013 was 13.02x (end-2012:11.0x) in the life business and 4.34x (end-2012: 3.27x) in the non-life business and they compare well with peers'. Fitch expects SLIC to receive state support, if required, because the Sri Lankan government (BB-/Stable) owns 99.9% of it and SLIC is the largest state-owned insurer.
The ratings also reflect SLIC's strong franchise built up since 1961 and its asset base of over LKR140bn. The company is the market leader in non-life insurance, accounting for 23% of the gross written premiums (GWP) in the market. In the life segment, the company is the second-largest, accounting for 19% of market GWP. Management expects life and non-life profit in 2013 to be about LKR1.5bn and LKR 3.bn respectively.
These strengths are balanced by its significant investments in non-core subsidiaries made in line with government policy and a high proportion of equities in its investment portfolio, which weaken SLIC's risk-based capital. The company is also exposed to high interest rate risk due to the asset and liability mismatches in the life business stemming from the limited availability of long-term investments in the market.
SLIC's National ratings may be upgraded if it is able to maintain market share while maintaining strong capitalisation and recurring core profitability. The International IFS will be capped by Sri Lanka's 'BB-' Country Ceiling.
The National and International IFS ratings and the National Long-Term rating could be downgraded if there is a weakening in the risk capital due to profit volatility or higher equity exposure, deterioration in the non-life combined ratio to above 100% on a sustained basis or a drop in the life regulatory solvency margin below 10x. A weakening in SLIC's importance to the government, increased pressure from the state for higher dividend pay-outs or a significant increase in non-core investments could also place pressure on the ratings. SLIC's ratings would also be sensitive to changes in its credit profile from the regulatory requirement to split of its life and non-life businesses by 2015.