INSUBCONTINENT EXCLUSIVE:
Fitch Ratings has placed the National Insurer Financial Strength (IFS) Ratings of seven Sri Lankan insurers on Rating Watch Negative
PLC-Continental Insurance Lanka Limited-Co-operative Insurance Company Limited-Sanasa General Insurance Company LimitedIn a statement, the
including elevated investment and liquidity risks, pressure on regulatory capital positions and a weaker financial performance outlook.The
RWN also reflects potential pressure on foreign-currency obligations for some companies due to the stretched foreign-currency liquidity in
the local banking system, it read further.Fitch Ratings said it believes the recent negative rating action on the Sri Lanka sovereign and on
various financial institutions underscores the investment risks of domestic insurers, whose investment portfolios are dominated by
fixed-income securities issued or guaranteed by the government, deposits and securities issued by local banks, non-bank financial
regulatory capital profiles
A significant deterioration in the credit profiles of financial institutions could lead to lower regulatory risk-based capital (RBC) ratios,
This includes premium payments to foreign reinsurers and other costs that are typically sourced from overseas
Foreign-currency denominated insurance contract obligations vary by insurer, but tend to be small and limited to certain non-motor classes
Growth in motor insurance - the largest contributor to non-life premiums for most insurers - is likely to remain subdued, as Fitch expects
be squeezed by rising motor spare-part costs due to currency devaluation, while overall costs will climb with rising inflation, the credit
investment and asset risks, including a downgrade of the ratings of financial institutions- significant liquidity constrains that impede
situation- sustained weakness in financial performance and earnings or risk management practices- a downgrade of the sovereign rating
stemming from a default event.Factors that could, individually or collectively, lead to positive rating action/upgrade:-There is limited
scope for upward rating action given the RWN.
This article first appeared/also appeared in https://adaderana.lk
