Regulations have changed Sri Lankan insurance market for better, says SLICL

The insurance market in Sri Lanka is developing fast. With a blossoming economy and strict governance, the industry’s smooth running is due to new laws and legislation

The headquarters of Sri Lanka Insurance Corporation, based in Colombo, Sri Lanka
The headquarters of Sri Lanka Insurance Corporation, based in Colombo, Sri Lanka 

Recent regulatory changes have had a positive effect on the insurance market, including a stringent risk-based capital regime and the increase in minimum regulatory capital and public listings. According to Fitch, the outlook for the industry is stable, and in actuality, these factors have contributed to the creation of a robust insurance market with plenty of potential for premium growth. “Fitch expects moderate top-line growth to continue, supported by low penetration and a steady flow in vehicle insurance related to rising car ownership,” the ratings agency says in its 2014 Outlook for the Sri Lanka Insurance Sector. That is excellent news for local players like the Sri Lanka Insurance Corporation (SLICL), which has been working tireless to develop the market and increase penetration across the island nation.

“SLICL is the undisputed market leader in the general insurance segment of Sri Lanka with an annual gross written premium of 12.95bn rupees ($10m) as reported for the financial year ended 31 December 2013,” says Piyadasa Kudabalage, the Managing Director at SLICL. “Our space in the general insurance market represents around one quarter of the total premiums written in Sri Lanka, and the balance is taken by 22 competitors of whom five are international insurers. This in itself demonstrates our strength, capability and the deep density created in our reach to the Sri Lankan nation.”

Sri Lanka is, admittedly, a market subject to stringent regulatory requirements and principles of good governance with specific accountabilities on capital adequacy, solvency and adherence to IFRS standards in financial reporting. “I have contributed personally in creating a robust insurance market with plenty of room for premium growth,” says Kudabalage. “Indeed, I am proud to announce that our corporation has consistently met all benchmarked parameters and is the only insurer to have an ‘AA(lka)’ rating from FITCH Ratings and AAA by RAM Ratings.”

Sri Lanka in figures


Population growth rate


Birth rate per 1,000 population


Men’s life expectancy at birth


Women’s life expectancy at birth


Health expenditures 2011

Source: Index Mundi. Notes: Includes estimated 2014 figures

Regulated market
SLICL has derived its strength from its rich history – which spans over half a century and created multifaceted distribution platforms and maintain a deep diversity in our product range and offerings. “SLICL believes firmly in the use of technology to maintain optimum efficiency and to gain and create value in a fast developing economy in which the insurance sector plays a pivotal role”, explains the managing director.

The assets of the general insurance business of SLICL as at end 2013 stands at a value of 57.7bn rupees ($443m) with a market standing of one third of the total available assets in the country’s general insurance sector (see Fig. 1). The reported gap between the corporation and its immediate competitor stands at 33bn rupees ($253m). “This shows the standing of our corporation in the Sri Lankan market space for general insurance,” says Kudabalage. “The professionally skilled and academically qualified work force of SLICL has been a strategic pillar and the driving force of our success. SLICL is regarded as an equal opportunity employer that creates no barriers for engagement or progression on grounds of race, religion or gender. Balanced gender diversity is maintained in the work place that spans over 127 branches including the head office. The staff retention rate of 95 percent speaks of the acceptance and conducive nature at the workplace.”

SLICL is committed to change for betterment of the corporation and industry. The life and general business section of the market are subject to specific regulations and the companies are expected to maintain a high level of independence in managing the respective businesses. The market is presently moving towards substantial changes in regulations whereby the following key changes are to be implemented in beginning the 2015/16 financial year.

In terms of the new laws, the composite companies are required to be segregated into two specific entities through different shareholding and the management structures dealings separately with life and general insurance business. “Our corporation has made all arrangements to comply with the new criteria beginning the year 2015,” says the managing director. “Accordingly, all general insurance business currently handled by SLICL will be transferred to a new entity; namely ‘Sri Lanka Insurance Corporation General Limited’. Therefore, all renewals as well as new business forming part of general business will from the year 2015 be handled by Sri Lanka Insurance Corporation General Limited.”

Another important regulatory change will be the adoption of risk based capital framework effective from 2016. This represents a significant change in managing the businesses of life and general insurance. SLICL has accomplished to the satisfaction of the regulatory authority the stipulated criteria and is more than prepared to meet the new change. “On the basis of the results of a parallel reporting mechanism organised by the insurance regulator, the Board of Directors of SLICL is absolutely confident that the company will be able to demonstrate the required efficiencies and criteria in the new regulatory framework associated with RBC,” says Kudabalage.

Investing in Sri Lanka
The current market structure in the general insurance sector in Sri Lanka consists of 22 Insurance companies along with 52 brokers and over 20,000 agents tied to traditional insurance companies. Brokers are also tightly regulated and agents are subject to a professional competency assessment at the point of enrolment. These regulations have helped make the market safe and resilient and in no small part contributed to the steady growth of the industry.

As at end 2013, the Sri Lankan market has recorded approximately $726m in gross written premiums. Out of the premiums, 85 percent has been generated by the use of direct sales and agency forces. The remaining 15 percent has been contributed by the brokers – mainly the local brokers other than in the case of a few who represent international franchises handling global accounts in Sri Lanka. “On the spilt of SLICL’s main business by lines, it is noteworthy to mention that of the of four main lines 56.61 percent is accounted by motor insurance, 26.06 percent by miscellaneous insurance which also include the health and medical lines of business, 14.42 percent by the fire and engineering lines and 2.91 percent by marine line of business,” explains the managing director.

Source: SLICL
Source: SLICL

In 2013 the market reported a nine percent growth over the previous year, and the average rate of growth in general insurance business over the previous three years has been around 10 percent a year. Within the current regulatory framework, the insurance regulator has permitted the conduct of bancassurance business and proposes to permit Institutional agencies. “The placement of reinsurance is also an area which is highly regulated,” explains Kudabalage. “All reinsurance providers must carry a rating above ‘BBB’ from S&P or its equivalent or maintain a sovereign rating acceptable to the insurance regulator.

“The insurance board verifies details of compliance on a quarterly basis and corrective measures are mandated against any party found violating. A salient feature in financial reporting is the new requirement to prepare and present financials based on IFRS standards. These have been adopted to ensure uniform financial reporting relevant to regulatory and supervising purposes,” he adds.

The market outlook for trade and industries in Sri Lanka looks extremely positive and the insurance sector is likely to be a key beneficiary as a result of the expansions underway on socioeconomic factors. These, together with current market space and the new regulatory framework, will pave the way for greater market stability, consolidation and mergers of insurance business in the near future. “Rates are expected to harden and the loss ratios are expected to improve in the backdrop of proposed RBC framework,” adds Kudabalage.

“SLICL is on sound and firm footing with necessary systems and human resources to support the key functions of underwriting and claims management in general insurance.

“This will add great value to key stakeholders including our reinsurance partners. Hence we offer solid platforms for reinsurers to support SLICL and mutually benefit from contracts we underwrite.”