April 12, 2017 / 8:30 AM / 9 months ago

Fitch Upgrades Sri Lanka's Continental Insurance to 'A(lka)'

(The following statement was released by the rating agency) COLOMBO/HONG KONG, April 12 (Fitch) Fitch Ratings has upgraded Sri Lanka-based Continental Insurance Lanka Limited's (CILL) National Insurer Financial Strength Rating and National Long-Term Rating to 'A(lka)' from 'A-(lka)'. The Outlook is Stable. KEY RATING DRIVERS The upgrade reflects the non-life operator's improving underwriting performance, satisfactory capitalisation, improving market franchise and prudent investment policy. The company continued its disciplined approach to underwriting, which has resulted in an improved non-life combined ratio of below 100% for the last two years (2016 and 2015: 98%). CILL started booking net profit from 2012 - its third year of operation. CILL has satisfactory capitalisation, as measured by its risk-based capital (RBC) ratio of 274%, compared with a regulatory minimum of 120%. The rating upgrade also factors in Fitch's expectation of RBC being maintained comfortably above 200% in the medium term. Management expects capitalisation to further improve amid continued profitability and low dividend pay outs. CILL's franchise continues to improve and is supported by its expanding branch network and association with its corporate group - Melstacorp PLC and Distilleries Company of Sri Lanka PLC (DIST, AAA(lka)/Rating Watch Negative (RWN)). CILL's market share by gross written premiums (GWP) improved to 4.3% at end-2016, from 3.6% at end-2015. Management expects further growth to moderate from the previous high levels, given the higher GWP. The company's network increased to 45 branches at end-2016, from 37 in the previous year. Branch related business accounted for half of total GWP in 2016 (2015: 52%, 2014: 46%), while business related to its corporate group fell to 17% of total GWP (2015: 18%, 2014: 24%). CILL's former ultimate parent, DIST, became a subsidiary of CILL's immediate parent, Melstacorp, in September 2016, following a group restructure. As a result, Fitch placed DIST's rating on RWN - the resolution of which will depend on DIST's final capital structure. CILL's ratings do not factor in explicit support from DIST and are unlikely to be affected by the resolution of DIST's RWN. CILL has minimal exposure to equities, which comprised less than 1% of its invested assets at end-2016. Corporate debentures - all of which were of investment-grade quality on the national scale - accounted for 38% of invested assets, while government securities accounted for 28%. Management plans to maintain this disciplined investment approach, mindful of the effects of the RBC capital regime that was introduced in 2016. RATING SENSITIVITIES The rating could be downgraded following weakening of CILL's combined ratio to above 110% for a sustained period or its RBC ratio being consistently below 200%. An upgrade could occur if the company continues to expand its market franchise, while consistently improving its combined ratio to below 95% and maintaining its RBC ratio well above 250%. Contact: Primary Analyst Kanishka de Silva Analyst +94 11 2541 900 Fitch Ratings Lanka Ltd. 15-04 East Tower, World Trade Center Colombo 01, Sri Lanka Secondary Analyst Jeffrey Liew Senior Director +852 2263 9939 Committee Chairperson Chris Waterman Managing Director +44 20 3530 1168 Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(lka)' for National ratings in Sri Lanka. Specific letter grades are not therefore internationally comparable. Media Relations: Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email: bindu.menon@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here National Scale Ratings Criteria (pub. 07 Mar 2017) here Additional Disclosures Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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