Fitch affirms People’s Insurance at ‘A+(lka)’; Outlook Stable
Fitch Ratings has affirmed People’s Insurance PLC’S National Insurer Financial Strength (IFS) Rating at ‘A+(lka)’. The Outlook is Stable.
“The affirmation reflects the company’s moderate business profile, good financial performance and capitalisation as well as its prudent investment mix.
People’s Insurance’s moderate business profile reflects its favourable competitive position, which is balanced by its moderate operating scale, business risk profile and diversification.
The business profile benefits from a substantive business franchise and competitive advantages through its association with the strong “People’s” brand,” the rating agency said.
Fitch believes that People’s Insurance’s risk appetite is on a par with the domestic non-life industry, with a somewhat diversified participation in business lines within the domestic non-life sector.
More than 75 percent of the insurer’s business was directed from the group during 9M18, mainly through referrals from its immediate parent, People’s Leasing & Finance PLC (PLC, B-/aa(lka)/ Stable).
Group-directed business, along with the gradual expansion in non-group business, helped the company maintain its position as the sixth-largest non-life insurer in Sri Lanka, with a Fitch-estimated market share of 5.3 percent as of September 2018 (2017: 4.9 percent). Fitch said the insurer’s ‘combined ratio’ of 97 percent in 9M18 was well below that of the industry (9M18: 103 percent, 2017: 100 percent), due principally to the company’s low-cost window-office distribution strategy.
People’s Insurance operates predominantly via 124 window offices placed inside the branches of PLC and its ultimate parent, People’s Bank (Sri Lanka) (PB, Aa+(lka)/stable), which helps the insurer keep its expense ratio low at 27 percent, compared with the industry average of 38 percent. In line with Fitch’s expectations, the insurer’s expense ratio increased during 9M18 to 27 percent from 25 percent in 2017 as a result of the company’s efforts to improve its non-group-related business.
Fitch expects the insurer to continue to benefit from the group business and its distribution strategy, which should keep the overall combined ratio below 100 percent in the medium term. We also believe the company’s access to adequate reinsurance capacity will keep the volatility in operating performance during periods of catastrophes at a minimum.
People’s Insurance’s steady capitalisation is reflected in its risked-based capital (RBC) adequacy ratio of 266 percent at end-september 2018 (2017: 319 percent), which is well above the 120 percent regulatory minimum.
However, the RBC ratio has declined gradually since end-2017, due partly to the company’s efforts to boost investment income by increasing allocations to riskier fixed-income securities within its investment policy guidelines. However, we expect People’s Insurance to maintain its RBC ratio above 225 percent in the medium term.
Fitch said the insurer follows a prudent investment policy, with more than 95 percent of the fixedincome portfolio invested in securities with a minimum rating of ‘A-(lka)’. The investment portfolio was dominated by fixed-income instruments (94 percent of invested assets), with 49 percent invested in fixed deposits at leading banks and non-bank financial institutions, 34 percent in listed debentures and 17 percent in government securities at end-september 2018. Allocations to equity were low at 2 percent of invested assets and management expects to keep this below 10 percent in the medium term.