Fitch Ratings has affirmed Sri Lanka-based Continental Insurance Lanka Limited’s (CILL) National Insurer Financial Strength (IFS) Rating. The Outlook is Stable.
The affirmation reflects the non-life insurer’s moderate business profile, satisfactory financial performance and capitalisation, as well as its prudent investment mix.
CILL’s business profile reflects its adequate business franchise, somewhat diversified participation in business lines in the non-life insurance sector, a risk appetite that is on a par with that of domestic peers and moderate operating scale.
The non-life insurer’s franchise is buoyed by its growing branch network and association with its corporate parent Melstacorp PLC (AAA(lka)/Stable).
CILL is Sri Lanka’s seventh-largest among 14 non-life insurers with a distribution strength of over 50 branches at end-2018.
The insurer’s capitalisation, as measured by its risk-based capital (RBC) adequacy ratio, was 250% at end-2018 (2017: 281%), above the 120% regulatory minimum.
However, the insurer’s RBC ratio was below historical levels in 2018, owing partly to the small widening in asset- liability cash flow duration mismatches, following the company’s efforts to extend the duration of some of its fixed-income investments to improve net yields. CILL increased allocation in 2018 to relatively longer duration fixed-income securities.
This was to mitigate higher effective taxes on investment income after the removal of tax exemptions on debentures and notional tax credits on government securities through the new Inland Revenue Act that came into effect in April 2018.