Fitch affirms Continental Insurance at ‘A(lka)’/stable
Fitch Ratings Lanka has affirmed Sri Lanka-based Continental Insurance Lanka Limited’s (CILL) national insurer financial strength (IFS) rating and national long-term rating at ‘A(lka)’. The outlook is stable.
The affirmation reflects the non-life insurer’s good domestic business profile, strong capitalisation, strong financial performance and earnings as well as its prudent investment policy.
Fitch sees CILL’S domestic business profile as good, supported by an expanding branch network and association with its corporate group Melstacorp PLC and Distilleries Company of Sri Lanka PLC (Aaa(lka)/rating Watch Negative). CILL’S market share by gross written premiums improved to 4.6 percent at end2017, from 4.2 percent in the previous year and its branch network increased to 49 branches, from 45 in 2016 and 37 in 2015.
We expect CILL to maintain strong capitalisation, supported by continued profitability and a conservative investment policy. The insurer’s capitalisation, as measured by its risk-based capital (RBC) ratio, was 281 percent (2016: 274 percent) against the 120 percent regulatory minimum. Management expects to maintain the RBC above 225 percent in the medium term.
Fitch sees CILL’S financial performance and earnings as strong. The insurer’s pre-tax return on assets improved to 8.3 percent in 2017, from 6.8 percent in 2016, supported by a 52 percent increase in pre-tax income. CILL has consistently maintained its non-life combined ratio below 100 percent for the previous three years with a disciplined underwriting approach. The ratio improved to 98 percent in 2017 (2016: 99 percent) owing to a lower claims ratio (2017: 60 percent, 2016: 62 percent).
CILL has a conservative investment policy, with a large exposure to high credit quality fixed income securities and a small exposure to equities.
Corporate debentures and government securities accounted for 33 percent and 22 percent of invested assets, respectively, as at end-2017 (2016: 38 percent and 28 percent).
The new Inland Revenue Act, which will come into effect from April 1, 2018, will increase effective taxes on investment income due to the removal of tax exemptions on debentures and notional tax credits on government securities. In response, management expects to improve net yields by increasing the duration of its fixed-income investments.