Fitch affirms Continental Insurance Lanka at ‘A-(lka)’ with stable outlook

Fitch-Ratings

July 30, 2015 (LBO) – Sri Lanka’s Fitch Ratings has affirmed Continental Insurance Lanka’s national insurer financial strength rating and national long-term rating of ‘A-(lka)’ with a stable outlook.

KEY RATING DRIVERS

The ratings reflect CILL’s satisfactory capitalization 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 2014, even though the non-life industry is intensely competitive, it managed to account for a modest 3.2% of the segment’s gross written premiums. CILL’s combined ratio of around 104% for 2014 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 tough competition in the industry.

CILL regulatory solvency ratio improved to 2.52x by end-December 2014 (end-December 2013: 1.77x), comfortably above the regulatory required level of 1x. The improvement follows DCSL’s injection of LKR250m of capital in July 2014. Fitch expects CILL’s regulatory solvency ratio to trend down as the business expands, but remain above 2x.

DCSL is a well-established, leading alcoholic beverage manufacturer in Sri Lanka. CILL benefits from group business and operational synergies.

RATING SENSITIVITIES

Key rating triggers for a downgrade include a sustained weakening in the combined ratio to above 110% or in the 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 capitalization at current levels.