Fitch upgrades Sri Lanka's Continental Insurance to 'A (lka)'

Fitch Ratings has upgraded Sri Lanka-based Continental Insurance Lanka Ltd's (CILL) National Insurer Financial Strength Rating and National Long- Term Rating to 'A (lka)' from 'A- (lka)'.

The upgrade reflects the non-life operator's improving underwriting performance, satisfactory capitalisation, improving market franchise and prudent investment policy, the rating agency said in a media release.

It said the company continued its disciplined approach to underwriting, which has resulted in an improved non- life combined ratio of below 100 per cent for the last two years ( 2016 and 2015: 98 per cent). CILL started booking net profit from 2012 - its third year of operation.

CILL has satisfactory capitalisation, as measured by its risk-based capital (RBC) ratio of 274 per cent, compared with a regulatory minimum of 120 per cent. The rating upgrade also factors in Fitch's expectation of RBC being maintained comfortably above 200 per cent in the medium term. Management expects capitalisation to further improve amid continued profitability and low dividend pay outs.

CILL's franchise continues to improve and is supported by its expanding branch network and association with its corporate group - Melstacorp PLC and Distilleries Company of Sri Lanka PLC (DIST, AAA (lka)/Rating Watch Negative ( RWN)). CILL's market share by gross written premiums ( GWP) improved to 4.3 per cent at end-2016, from 3.6 per cent at end- 2015. Management expects further growth to moderate from the previous high levels, given the higher GWP.

The company's network increased to 45 branches at end-2016, from 37 in the previous year. Branch related business accounted for half of total GWP in 2016 (2015: 52 per cent, 2014: 46 per cent), while business related to its corporate group fell to 17 per cent of total GWP (2015: 18 per cent, 2014: 24 per cent).

CILL's former ultimate parent, DIST, became a subsidiary of CILL's immediate parent, Melstacorp, in September 2016, following a group restructure. As a result, Fitch placed DIST's rating on RWN - the resolution of which will depend on DIST's final capital structure. CILL's ratings do not factor in explicit support from DIST and are unlikely to be affected by the resolution of DIST's RWN.