Fitch rates People’s Insurance ‘A+(lka)’/stable

Fitch Ratings has assigned Sri Lanka-based People’s Insurance PLC a National Insurer Financial Strength (IFS) Rating and National Long-term Rating of ‘A+(lka)’. The Outlook is Stable.

The ratings reflect the non-life insurer’s strong domestic business profile, which is supported by its association with the People’s Bank (Sri Lanka) (PB, Aa+(lka)/stable) group, strong capitalisation and adequate profitability metrics. The company has an operating history of eight years and is focused mainly on the motor segment - 84 percent of Gross Written Premiums (GWP) in 2017.

The company’s business profile is supported by the strong “People’s” brand name associated with its banking parent. Over 80 percent of People’s Insurance’s business was channelled from the group in 2017, mainly by way of referrals from its immediate parent, People’s Leasing and Finance PLC (PLF, B/aa-(lka)/ Stable), a leading vehicle leasing financier in Sri Lanka. People’s Insurance operates predominantly via 124 window offices placed inside PLF and PB branches, which promote cross selling to PLF and PB clients. The group has helped the company achieve a medium non-life market share of 5.2 percent, as measured by GWP, in 2016.

The “People’s” brand will also help the company expand its non-group related business. People’s Insurance is a 75 percent subsidiary of PLF, which in turn is a 75 percent subsidiary of PB. PLF is one of Sri Lanka’s largest nonbank financial institutions, while PB is the country’s second largest bank and is fully owned by the government of Sri Lanka (B+/stable). People’s Insurance accounted for 4.6 percent and 0.5 percent of PLF’S and PB’S total assets, respectively, at end-september 2017.

Fitch sees People’s Insurance’s financial performance and earnings as strong. The company’s low cost window-office distribution strategy means its expense ratio of 26 percent in 2017 (2016: 23 percent) is lower than that of the industry (9M17: 38 percent, 2016: 36 percent), leading to a combined ratio of 95 percent in 2017 and 94 percent in 2016, well below that of the industry (9M17: 103 percent, 2016: 105 percent). However, we expect the expense ratio to increase as management executes its mediumterm expansion plan of expanding non-group related business.

Other profitability metrics are also strong, with return on assets of 12.3 percent and return on equity of 27 percent in 2017. High volume from PLF helped People’s Insurance achieve underwriting profits by its third year of operation.

People’s Insurance’s capitalisation is strong, with a risk-based capital (RBC) ratio of 319 percent at end2017, against the 120 percent regulatory minimum. Total available capital was LKR2.8 billion, compared with a regulatory minimum of LKR0.5 billion. An IPO in 2015 raised LKR0.8 billion, boosting stated capital to LKR1.4 billion.

More than 95 percent of People’s Insurance’s investment portfolio was in fixed income at end-2017; 43 percent was invested in fixed deposits at leading banks and nonbank financial institutions, 28 percent in listed debentures and 23 percent in government securities. Over 95 percent of the fixed-income portfolio was invested in assets rated ‘A-(lka)’ and above. Listed shares accounted for two percent of invested assets and management expects to keep this below 10 percent in the medium term.