Steady premium expansion continues in Sri Lanka's insurance sector


These are changing times for Sri Lanka’s insurance sector. Major regulatory moves over the last two years have seen much strengthening and consolidation, with these processes set to continue in the year ahead. Profitability remains high, particularly in the life insurance segment, while in the non-life segment a fiercely competitive environment is driving companies to find ways to differentiate through more innovative and distinctive products and campaigns.

Meanwhile, many eyes are focused on Sri Lanka’s macroeconomic conditions. Areas such as medical and health, real estate and project insurance are all tipped to be future growth areas, as the country’s economy cranks up and the middle class expands.

Regulation & Sector Bodies

The state regulator for the sector is the Insurance Board of Sri Lanka (IBSL), which overseas both life and non-life insurance markets. In addition, the board advises the government on policy for the industry, while also licensing companies and brokers. A further key body is the Insurance Association of Sri Lanka, which represents 29 companies, with its executive committee comprising the CEOs of all these important market players. The Sri Lanka Insurance Brokers’ Association represents those working in this significant channel of distribution. Full foreign equity participation is permitted in the sector.

In Figures

According to data from the IBSL, in the fourth quarter of 2016 the pre-tax profits of both life and non-life insurers rose substantially on the fourth quarter of 2015. For life, growth leapt from LKR7.5bn ($51.1m) to LKR9.3bn ($63.4m), while for non-life profits grew from LKR5.4bn ($36.8m) to LKR12.3bn ($83.9m). This represented sector pre-tax profit growth of 67%.

Over the same period the sector’s total assets rose by 11% from LKR453.6bn ($3.1bn) to LKR503.1bn ($3.4bn), with the life insurance segment’s total rising from LKR305.4bn ($2.1bn) to LKR334.4bn ($2.3bn) and an increase in the non-life segment from LKR148.2bn ($1.01bn) to LKR168.8bn ($1.15bn). Gross written premiums (GWPs) were up 16% from LKR120.9bn ($824.4m) to LKR140.3bn ($956.6m), with non-life accounting for the larger share, or LKR67.4bn ($459.6m), in the final quarter of 2015 and LKR76.8bn ($523.7m) in the same period a year earlier. Life GWPs increased from LKR53.6bn ($365.5m) to LKR63.5bn ($433m).

These figures followed considerable growth in previous quarters. In 2015 GWPs expanded by 16% year-on-year (y-o-y) for the sector overall, compared to in 2014 when growth stood at 5%. Prior to that, the 2011-14 period had seen double-digit annual growth. Life – sometimes referred to by the IBSL as “long-term insurance” – saw its GWPs increase by 20% in 2015 y-oy, while non-life – sometimes referred to as “general insurance” by the IBSL – grew 13% over the same period. The sector is therefore a healthy one, with growth of over 10% per annum a prevailing characteristic.

Penetration & Income

The insurance sector remains a small one in comparison to other parts of the economy. The IBSL figures show penetration, or total industry premiums as a percentage of GDP, of 1.09% in 2015, up 8% on 2014, but still lower than many countries in Asia. In 2015 Malaysia, for example, already had an overall insurance penetration rate of 4.8%, while Indonesia managed 1.6%, according to OECD data.

In Sri Lanka, the life insurance sector had a penetration rate of 0.43% in 2014; for non-life this figure was 0.58%. These levels rose in 2015 to 0.48% and 0.62%, respectively. In LKR terms, insurance density stood at LKR5838 ($39.81) in 2015, up from LKR5074 ($34.60) in 2014 and LKR3934 ($26.82) as recently as 2011.

Insurance policy take up is often connected to per capita income, although the relationship can be a complex one. Per capita income has been taking off in recent times, as the overall economy has thrived, following the end of the civil conflict in 2009. Real GDP increased by 8% in 2010, 8.4% in 2011 and 9.1% in 2012, according to “Sri Lanka: State of the Economy 2016” report published by the Institute of Policy Studies Sri Lanka. However, a slowdown then followed due to a weakening external environment and imbalances in the domestic economy (see Economy chapter). GDP growth for 2015 still stood at around 4.8%, for a population of close to 21m. The latest data from the World Bank shows that GNI per capita (at current US dollar rates) thus grew from $2020 in 2009 to $3800 in 2015.

These numbers put insurance penetration in Sri Lanka slightly above where it should be, using a recent Swiss Re calculation, where the breakthrough point comes at around $5000 in per capita income for a total industry premium of about 1% of GDP. At a per capita income of $5000, a middle class with insurable assets and disposable income is clearly developing. This is the case in cities such as Colombo and other urban centres, mainly in the Western Province.

Disposable income, however, is the real key, with many insurers keeping a close eye on the government for signs of how its policies may affect growth. In 2015 interest rates were low, encouraging consumption, but in 2016, in order to cool off credit growth, the new government raised interest rates, while also hiking taxes. For the year ahead, these moves may also have dampening effects on the insurance sector.

Sector Players

The IBSL data shows that there were 32 companies active in the market in 2015. Ranking these according to their total assets, the largest was Sri Lanka Insurance Corporation (SLIC), with LKR167.5bn ($1.1bn). This represented 36% of the industry total, with the company a leading player in both the life and non-life markets. Next largest was Ceylinco Life with LKR80.6bn ($549.6m), or 17% of the industry total. No other company achieved double-digit market share, and third place went to AIA Life with assets of nearly LKR46bn ($313.7m), or 9.9% of total assets.

Thus, the insurance market is dominated by two large companies, which comprised more than half of the market in 2015. SLIC is a state-owned institution, coming under the auspices of the Ministry of Finance, having spent six years between 2003 and 2009 as a privatised entity. The corporation was a pioneer in the industry too, enjoying a monopoly position from its foundation in 1962 until liberalisation of the sector in 1988 allowed private companies to enter. SLIC thus has a number of national records to its name, from the largest claim ever paid – LKR39.5bn ($269.3m) – to the largest bonus ever declared to life policy holders – LKR5.4bn ($36.8m). The corporation’s life sector had assets of LKR94.9bn ($647.1m) in 2015, and non-life of LKR72.6bn ($495m). In addition, SLIC benefits from captive markets; companies in the garment industry, for example, must have insurance policies with SLIC.

Ceylinco, originally the Ceylinco Insurance Company, which started business in 1988, had life assets of LKR80.6bn ($549.6m) and non-life assets of LKR18.8bn ($128.2m) in 2015. These were split between Ceylinco Life and Ceylinco General, as the company was divided in line with the new regulatory regime (see analysis).

Lines Of Business

In terms of assets, Ceylinco General was the second-largest outfit in the non-life sector in 2015. First place went to SLIC that year, with LKR72.6bn ($495m), or around half the entire market. Third place went to Janashakthi General, with LKR11.2bn ($76.4m), meaning the top-three general insurers accounted for 65% of the market.

Motor is by far the largest line in the general insurance business, with IBSL figures showing that in 2015 GWPs for the segment stood at LKR42.6bn ($290.5m), accounting for 62% of total GWPs in the non-life segments. In 2015 motor GWPs increased by 19% y-o-y – the highest growth rate of any line of business. Marine was second, with 8% growth.

Civil commotion and terrorism insurance accounted for LKR3bn ($20.5m) in 2015. Coverage for this segment is provided by the National Insurance Trust Fund (NITF), which was established in 2006 under the Ministry of Policy Planning and Economic Affairs, and which also supplies the market with reinsurance.

In the fourth quarter of 2016 the estimated GWPs for the motor sector reached LKR49.4bn ($336.8m), up 15% from LKR42.9bn ($292.5m) in the same period of 2015. Fire recorded LKR6.9bn ($47m), with marine taking LKR2.3bn ($15.7m) and other categories totalling LKR18.3bn ($124.8m). At the same time, figures for earned premiums were LKR43.9bn ($299.3m) for motor, LKR677.2m ($4.6m) for fire – around half what it was in the same period of 2015 – LKR894.4m ($6.1m) for marine, a slight increase from the year before, and LK11.5bn ($78.4m) for other categories, up from around LKR9.7bn ($66.1m) in the fourth quarter of 2015.

Much of motor’s expansion is connected to expanding car ownership, with the number of vehicles on the road jumping from 5.6m in 2014 to 6.3m in 2015, according to the Ministry of Transport and Civil Aviation. Third-party insurance is compulsory, and constitutes many Sri Lankans sole encounter with insurance. It is also one of the most competitive lines of business.

Fire insurance, meanwhile, also includes flood, which saw considerable pay outs in 2016, with the NITF estimating that flooding during May, caused by a severe tropical storm, would give rise to around LKR15.5bn ($105.7m) in claims. Under IBSL regulations, companies are required to cede 30% of their reinsurance to NITF, with the balance ceded to global reinsurers, in order to ensure sufficient coverage in the event of such catastrophes. Fire also has a low retention rate, around 22% in 2015, according to the IBSL, indicating that many properties damaged by the floods were likely uninsured – and the need for greater awareness of the importance of insurance coverage, particularly as climate change impacts the country’s weather.

The NITF had obtained some LKR10bn ($68.2m) in reinsurance cover earlier in 2016 to use in the settlement of claims up to LKR2.5m ($17,000) for uninsured properties affected by natural disasters. The NITF also covers fishermen up to LKR1m ($6820) for loss of life at sea, and provides LKR100,000 ($682) in coverage for any citizen killed by natural disaster. Since 2003 it has been required that 0.2% of the net premium of life and 0.4% of the net premium of non-life insurers is paid into the Policyholders’ Protection Fund. This also funds awareness activities and the expenses of the IBSL.

Life Lines

In life insurance, meanwhile, at 25%, Ceylinco Life had the largest market share in 2015, followed by SLIC with 19%, AIA Life with 16% and Union Life with 13%. In terms of claims, the line showing the most growth was maturity benefits, which went up 20% y-o-y, and represented more than half of all claims.

There is little variation in life insurance policies, with companies looking to broaden their range of products. In the meantime, a more conservative approach is generally being taken, as the market continues to broaden and deepen, while remaining comparatively small.

One area tipped for future take-off is health, which is currently generally only issued as an attachment to standard life insurance policies. As the private health sector expands, and incomes grow, this segment may begin to mature. However, many insurers are reluctant to enter the market, as it can have high claims, while Sri Lanka also offers its citizens a universal state-covered health system (see Health & Education chapter). Nonetheless, as the sector develops, greater depth and resources, the health segment may begin to take a larger slice of the premiums.

Sales & Distribution

At the end of 2015 there were 1872 branches of insurance companies nationwide, with 15,830 people employed in the sector. Both of these figures represented growth compared with 2014, when the numbers had been 1465 and 15,650 respectively. The Western Province accounted for around one-third of the branches, and two-thirds of the employees, while of the 45,433 registered insurance agents, 17,847 were also located in this most economically dominant region. Uva Province in the south-east had the smallest number of branches, at 108, as well as fewest agents, while the Northern Province had the smallest number of employees, at 430 in 2015.

Some 56 companies were licensed as insurance brokers for 2016, with a cap on the number of licences that could be issued mid-year. This led to new players entering the market. Insurance brokers are required to have paid-up capital of at least LKR2.5m ($17,000).

IBSL figures show that in life, agents remain the main channel for distribution, with some 90% of policies issued this way in 2015. In non-life there was a broader mix of channels, with agents accounting for 28%, direct sales for 27%, brokers for 17% and others, not including bancassurance, for 23%. Bancassurance remains relatively undeveloped in Sri Lanka, encompassing 3.99% of the life and 3.81% of the non-life business.


The year ahead will undoubtedly see some challenges for sector players, yet overall, the climate remains a healthy one, with the major companies all looking forward to continued growth and profitability. Where the challenge may lie is for the smaller players, looking to raise capital in a less growth-oriented environment. Hikes in taxes and prices may impact disposable incomes, too, with a knock-on effect for the sector. Yet, as penetration rates remain at a low level, the market continues to have huge potential, while it is also open to foreign investment and ownership.


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The Report: Sri Lanka 2017

Insurance chapter from The Report: Sri Lanka 2017

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