A raft of new regulations suggrests improved insurance sector performance in Sri Lanka

As Sri Lanka’s economy has expanded over the past half decade, it’s insurance industry has grown apace, in the process becoming a vibrant and competitive market in its own right. Some 29 insurance companies were operating in Sri Lanka as of the beginning of 2016, at which point the sector’s total assets were valued at LKR394.2bn ($2.8bn), according to data from the industry regulator, the Insurance Board of Sri Lanka (IBSL). This figure is up slightly from the same period the previous year, although down from an end-2014 total of LKR406.8bn ($2.9bn). Recent short-term fluctuations aside, over the past five years the industry has grown considerably, with total assets nearly doubling over the 2010-14 period, according to the IBSL. On the back of a raft of recent regulatory improvements and demand-driven uptake, local players expect to see continued rapid expansion for the foreseeable future.

Legislative Push

Nonetheless, various challenges remain. Under regulations introduced in 2011 and enforced since early 2015, local operators are newly required to segregate their coverage by class, with composite companies obligated to split up their business into separate life and general insurance firms. In an additional set of new IBSL rulings that came into effect in February 2015, all firms were required to increase their stated capital from $100m to $500m. The new legislation has created challenges for some smaller insurers, and is widely expected to lead to a period of market consolidation in the coming years. More fundamentally, insurance penetration remains low – with total premiums as a percentage of GDP at just over 1% as of the end of 2014, according to data from Fitch Ratings – which is primarily the result of a widespread lack of awareness of the benefits of insurance among the general population.

In recent years the government has taken various steps to overcome these issues, in an effort to boost the overall insurance penetration rate and encourage the further development of the industry. In addition to the recently instituted division of life and non-life business lines and the increased capital requirements, both of which are expected to have a positive long-term impact, the IBSL has either already introduced or is in the process of instituting a number of additional new policies. For example, the board will require all insurers to list on the Colombo Stock Exchange (CSE) in 2016, in an effort both to grow the bourse and to encourage transparency in the insurance market. Another recently introduced regulation requires all firms to improve their risk management regimes, particularly in regard to capital supervision.

In Figures

The outlook for the insurance industry remains strong, if anything because it comes from a low base, on top of strong GDP growth in recent years. In the first six months of 2015, Sri Lanka’s insurance industry brought in gross written premiums (GWPs) valued at LRK54.6bn ($393.1m), up 11.7% from the same period the previous year, according to the IBSL. General insurance lines – which include motor, fire, marine and other classes of miscellaneous non-life products – accounted for LRK32.1bn ($231.1m) of the 2015 figure, or around 59% of the total, while life products, which are known in Sri Lanka as long-term insurance, made up the remaining 41%. By comparison, in the first six months of 2014 general products accounted for 58% of total premiums.

Total annual GWPs have grown substantially since Sri Lanka’s long-running civil conflict ended in 2009. In 2010 the insurance industry brought in gross premiums of LRK66.3bn ($477.4m). By 2014 this figure had jumped to LRK99.8bn ($718.6m), which represents growth of more than 50%. Much of this expansion took place immediately following the end of the war, with annual GWP growth rates of 15%, 18% and 11% in 2010, 2011 and 2012, respectively. Meanwhile, in 2014, IBSL data shows annual GWP growth of 5.1%. Total assets followed a similar trajectory.

At the end of 2010 the industry’s total assets reached LRK219.1bn ($1.6bn), up 21% on the previous year. This figure increased another 19.3% in 2011 and 20.8% in 2012, to reach LRK315.8bn ($2.3bn) at the end of that year. In 2013 and 2014, meanwhile, the sector’s asset base grew at rates of 13.2% and 13.8%, respectively, to reach the previously mentioned end-2014 figure of LRK406.8bn ($2.9bn). At the end of 2014 just over 61% of total assets were in long-term insurance products, with the remainder in general products. From 2010 to 2014 the industry’s long-term product assets grew by 99%, compared to 79% for general insurance products, according to IBSL.

Key Products

As of the end of 2014, motor premiums accounted for 63.2% of all general GWPs, while miscellaneous products made up 22%, fire made up 12% and marine made up 3%. These figures are roughly in line with the non-long-term product divide since 2010, according to Fitch. Many of Sri Lanka’s general insurance classes remain loss making for a number of firms. Part of the reason for this is a slowdown in non-life segments. The fire segment, for example, experienced negative growth of around 0.1% in 2014, compared to positive growth of more than 16% the previous year.

However, the primary driver of underwriting losses in the general segment is downward price pressure, which is a result of intense competition, particularly in the motor segment, where price cutting has allowed some smaller players to gain market share on more established players. Motor premiums, as the dominant class in general insurance business, are sensitive to vehicle import tax rates and other related issues. Benefitting from a significant rise in imports in 2015, motor premiums are expected to cool as vehicle registrations stabilise in 2016. The long-term segment, meanwhile, tends to be more profitable, due in large part to high premiums on unit-linked policies.

Major Players

As of the beginning of 2016, Sri Lanka was home to 29 insurers, including 14 general firms, 12 long-term firms and three composite firms. Many of the these were split businesses prior to the February 2015 mandate, or are composite companies in the process of dividing up their product lines. Additionally, AIG is in the process of exiting Sri Lanka and AIA General Insurance is currently being acquired by Janashakthi. Sri Lanka’s insurance market is heavily concentrated, with the top-five insurers pulling in 81.6% of all GWPs in 2014. In terms of assets, the Sri Lanka Insurance Corporation, which is owned by the government, was the largest operator in the country in 2014, with just under 40% of total insurance assets. Ceylinco Insurance, a Sri Lankan-held group, was the second-largest insurer by assets in the same period, with 22.6% of the total, followed by AIA Insurance, with 11.7% of assets; Union Assurance, with 8.7%; and Janashakthi, with 5%. Full foreign equity participation is permitted in insurance, which brought Allianz Insurance and Allianz Life to Sri Lanka as subsidiaries of Allianz SE. In addition to the insurers themselves, as of the end of 2014 the sector was made up of 58 insurance brokers. In total Sri Lanka was home to more than 43,340 insurance agents in 2014.


The IBSL’s recent effort to improve transparency and to streamline the market has four key elements. First, the regulator announced that by February 2015 all players would have to split their general and long-term business lines in a process known as market segregation. While this has been a challenge, particularly for smaller players, most of the leading firms believe that it will have a positive long-term impact. “Profits from the life side have historically covered the underwriting losses for the general insurance business. Some non-life companies do not make profits even after investment income,” Surekha Alles, CEO of Allianz Insurance in Sri Lanka, told OBG. “The separation of non-life and life is a cost for many companies, but is generally a good move by the insurance regulator so that there would be professional management of each segment in the light of the risk-based capital regime, which would be healthy for the insurance industry.” Second, the increase in minimum regulatory capital from LRK100m ($720,000) to LRK500m ($3.6m) is widely expected to have a similar effect, facilitating increased market stability and long-term development.

Third, by February 2016 Sri Lanka’s insurers were expected to have instituted risk-based capital regimes and to have listed on the CSE. However, some larger international companies are expected to receive exemptions from this latter ruling, on the basis that they do not need to join the local capital market in order to access capital, and doing so would be a burden. “If a firm can bring in foreign capital, and if the parent company is listed elsewhere in the world in a recognised stock exchange, which is a member of the Federation of Stock Exchanges, why should they have to list in Sri Lanka? Furthermore, corporate governance rules, accountability and transparency are much wider for the multinational corporations, hence, the status quo does not change by listing again in the local stock exchange.” Alles told OBG. “This situation has resulted in many foreign entities setting up offices and businesses in Sri Lanka.”

The coming years are widely expected to be a period of rapid change and significant growth in Sri Lanka’s insurance sector. “We have laid down new rules for market activity and development, and we are active in both outreach and claim rejection investigation,” Damayanthi Fernando, the director-general of the IBSL, told OBG in mid-2015. “Through these outlets, we hope that both awareness and confidence will continue to improve for the foreseeable future.”

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The Report: Sri Lanka 2016

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