Sri Lanka insurers need skills to manage forex risk: rating agency

Mar 23, 2011 (LBO) – Sri Lanka’s insurers will need skills and rules to manage foreign exchange risk after the regulators allowed up to 20 percent of their reserves to be invested abroad, a rating agency has said. Meanwhile life premium had risen 16 percent in the first half of 2010.

RAM Ratings Lanka said allowing up to 20 percent of insurers’ technical reserves or long term funds to be invested abroad give an opportunity for Sri Lankan firms to tap diverse investments.

“On top of that, the regulator has issued fresh solvency regulations in 2011, thus widening the range of investments acceptable as admissible assets and refining the definition of investments,” the rating agency said in an insurance sector report.

“These initiatives are viewed positively as they broaden investment avenues for insurers.”

But there was room to improve investment guidelines. RAM Ratings said firms will now face foreign exchange risk.

“At present, most insurance companies’ investment guidelines do not capture such risks, as such there remains room for improvement,” RAM Ratings said.

Sri Lanka is pegged to the US dollar and in 2010 the rupee had been appreciated over 3.5 percent amid tight monetary poli