Implications of privatisation of Sri Lanka Insurance Corporation

In March 2023, the Government of Sri Lanka appointed a State-owned Enterprises Restructuring Unit (SRU) to execute the divestiture of several State-Owned Enterprises (SOEs) including SLIC. Whilst some of these SOEs are loss-making and the sale of such entities would assist with the current financial crisis in the country, it would be a huge financial and economic loss to Sri Lanka to privatise SLIC.

SLIC currently manages an asset base of over Rs. 274 billion which is the largest in the insurance industry and holds the largest life insurance fund in the local insurance industry amounting in excess of Rs. 156.7 billion.

Life insurance is a long-term business and therefore the liability valuation and hence the surplus derived is heavily dependent on long-term demographic and economic assumptions. These assumptions are set by the company’s Appointed Actuary using future trend analysis techniques and actuarial analyses.

Particularly with the impending implementation of the new insurance accounting standard IFRS17, the basis of calculating the liabilities for the purpose of surplus determination will be subject to a considerable amount of change, which invariably will affect the equity position and surplus of the insurance company.

Owning such a vast life fund, SLIC is a hidden national asset to Sri Lanka. Whilst the sale of this SOE to a foreign entity would certainly bring in much needed financial relief to the country, we would sustain a considerable financial and economic loss in the long term. The loss is further exacerbated if the sale occurs before Sri Lanka implements IFRS17, as the surplus generated from the accounting basis change would be gained immediately by the buying party.

As SLIC is a State-owned insurer, most Government workers are also insured with SLIC, and are subject to the large benefits declared by the company. In 2022, SLIC declared more than Rs. 10 billion as bonuses to their policyholders, which is the largest bonus declaration by an insurance company in Sri Lanka. However, upon privatisation of SLIC there is a risk that policyholders may not receive the same level of benefits going forward. Further, as the majority of the policyholders are government workers, who may be relying on the financial support provided through the insurance at SLIC, it may have a detrimental impact on their financial stability.

Understanding the financial and economic loss that the country would have to endure based on the concerns raised above, it is vital that the Sri Lankan Government and SRU reconsider the decision to privatise SLIC.

Oscar Siritunga,

Wadduwa