Fitch Ratings-Colombo-04 September 2014: Fitch Ratings Lanka has assigned Sri Lanka-based Continental Insurance Lanka Limited (CILL) a National Insurer Financial Strength Rating and a National Long-Term Rating of ‘A-(lka)’. The Outlook is Stable.
KEY RATING DRIVERS
The ratings reflect CILL’s satisfactory capitalisation in terms of regulatory solvency, relatively short operating history and modest market share. The ratings also reflect the recent capital infusion by its parent, Distilleries Company of Sri Lanka PLC (DCSL; AAA(lka)/Stable). CILL is fully owned by DCSL through holding company Melsta Corp Limited.
CILL was established as a non-life insurer in 2010 and by 2013, even though the non-life industry is intensely competitive, it managed to account for a modest 2.5% of the non-life industry’s gross written premiums. CILL’s combined ratio of around 105% for 2013 compares well with its peers’ and is satisfactory, especially given the company’s short operating history. Fitch expects improvements to the ratio to be slow given the intense competition in the non-life industry.
CILL regulatory solvency ratio was 1.7x in 1Q14, comfortably above the regulatory required level of 1x. This ratio is expected to improve with the recent capital infusion, and then trend down with the growth in business. Fitch expects the company to maintain the solvency ratio at above 2x.
The company’s ultimate parent DCSL is a well-established, leading alcoholic beverage manufacturer in Sri Lanka. The company benefits from group business and operational synergies.
Key rating triggers for a downgrade include a sustained weakening in the combined ratio to above 110% or in solvency ratio to below 2x.
A rating upgrade in the short term is unlikely. In the medium to long term, the company’s ratings may be upgraded if it achieves increased scale while maintaining profitability and capitalisation at current levels.
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Note to editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA(lka)’ for National ratings in Sri Lanka. Specific letter grades are not therefore internationally comparable.
Additional information is available at www.fitchratings.com
Applicable criteria, ‘Insurance Rating Methodology’, dated January 2013, and ‘National Scale Ratings Criteria” dated 30 October 2013’, are available at www.fitchratings.com.
Applicable Criteria and Related Research:
Insurance Rating Methodology
National Scale Ratings Criteria