Dec 15, 2011 (LBO) – Sri Lanka’s insurers are well capitalized and profitable but investment income is falling and areas such as motor are seeing rising claims amid price competition, Fitch, a rating agency has said. “As such, underwriting profitability remains under pressure with many companies posting combined ratios above 100 percent, and having to rely on investment income to compensate for underwriting losses.
“Fitch notes that the high investment returns earned in 2010 are unlikely to recur in 2011 and 2012.”
Investment income had fallen to 10.8 percent of average assets in the first half of 2011 from 18.9 percent in 2011.
If competition in motor gets more intense and underwriting profitability is weakened due to higher claims ratio it could hurt the outlook for the sector, which was now stable. A weakening of capitalization or solvency could also hurt the outlook.
Fitch said fundamentals of insurers rated by the agency had healthy capitalisation and good profitability, supported by improved macroeconomic factors.
The regulator, Insurance Board of Sri Lanka had asked insurers to separate their life and general businesses by 2015, and increase the minimum capital requirements.