Buoyed Profits

Dec 22, 2008 (LBO) - RAM Ratings has assigned a claims-paying ability rating of BB to Sri Lanka's Co-operative Insurance Company Limited (CICL) with a stable outlook. It said in a statement the rating takes into account the company’s "moderate competitive position" and underwriting standards.

"However, the rating is pressured by hefty overheads, inadequate reserving and regular dividend requirements of its shareholders."

RAM Ratings noted that CICL's inadequate reserving tends to "buoy profits".

In addition, the company has been declaring high dividends since the 2006 financial year to "appease" its shareholders, the rating agency said.

"CICL’s average dividend payout ratio over the past two years stood at a high 86.94 percent, further constraining internal capital generation and thus the company’s capacity to absorb risks," the statement said.

"RAM Ratings views this negatively."

Established in 1999, CICL is a relatively new player providing both life and general insurance.

Being a co-operative establishment has enabled the company to leverage on the distribution network of other co-operative societies, RAM said.

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