Fitch upgrades four Lankan insurers’ National IFS Ratings after scale recalibration, affirms three

Fitch Ratings has upgraded the National Insurer Financial Strength (IFS) Ratings of four Sri Lankan insurers following the recent sovereign upgrade and recalibration of the agency’s Sri Lankan national rating scale. At the same time, Fitch has affirmed the National IFS of three Sri Lankan insurers.

The recalibration reflects changes in the relative creditworthiness of Sri Lankan issuers after Fitch upgraded Sri Lanka’s Long-Term Local-Currency Issuer Default Rating (IDR) to ‘CCC+’ from ‘CCC-’ on 20 December 2024. Fitch typically does not assign Outlooks to sovereigns with a rating of ‘CCC+’ or below.

National scale ratings are a risk ranking of issuers in a particular market designed to help local investors differentiate risk. Sri Lanka’s national scale ratings are denoted by the unique identifier ‘(lka)’. Fitch adds this identifier to reflect the unique nature of the Sri Lankan national scale. National scales are not comparable with Fitch’s international rating scales or with other countries’ national rating scales. For details, see “Fitch Ratings recalibrates Sri Lanka’s national rating scale”, published on 16 January 2025.

The following insurers were upgraded:

• Continental Insurance Lanka Ltd., (CILL) to ‘A(lka)’/positive from ‘A-(lka)’/positive
• People’s Insurance PLC to ‘A(lka)’/stable from ‘A-(lka)’/stable
• HNB Assurance PLC to ‘A(lka)’/stable from ‘A-(lka)’/stable
• HNB General Insurance Ltd., to ‘A(lka)’/stable from ‘A-(lka)’/stable

Fitch has also affirmed the National IFS Ratings of the following insurers:

• National Insurance Trust Fund Board (NITF) at ‘BBB(lka)’/stable
• Co-operative Insurance Company PLC (CICPLC) at ‘BB(lka)’/stable
• Construction Guarantee Fund (CGF) at ‘BB(lka)’/stable

The National Rating upgrades are driven by the upgrade of the sovereign’s Long-Term Local-Currency IDR and the recalibration of the national rating scale. The ratings reflect the relative creditworthiness of Sri Lankan issuers. It is believed the sovereign’s credit profile improvement has alleviated the investment and liquidity risks of insurers. The investment and liquidity risk profiles of Sri Lankan insurers are closely linked with that of the sovereign and banks as their investment portfolios are dominated by local-currency fixed-income securities issued by the government, corporate debt and deposits with financial institutions.

The Positive Outlook on CILL reflects its consistently good underwriting performance, improvement in market franchise and maintenance of a satisfactory regulatory capital position.

The affirmation of NITF’s rating reflects continued weakness in risk-management practices, evident from its inability to renew the retrocession cover for its reinsurance business. The affirmation also takes into consideration higher earnings from the strike, riot, civil commotion and terrorism (SRCCT) business after a recent government directive requiring primary insurers to remit 100% of motor SRCCT premiums to NITF, up from the previous 12%.

The affirmation of CICPLC’s rating reflects the insurer’s “Moderate” company profile and volatile underwriting performance offset by a satisfactory regulatory capital position. The rating also reflects CICPLC’s “Less favourable” corporate governance.

The affirmation of CGF’s rating reflects its operating conditions, which are closely linked to construction activity mandated by the Government. The Government’s weak fiscal position has resulted in fewer new Government-led construction contracts, the suspension of existing projects and payment delays to contractors. This has affected CGF through a drop in premium income and a higher risk of claims by employers, which will be partially offset by a reduction in guaranteed liabilities due to the slowdown in new construction contracts.