Oct 25, Colombo: Fitch Ratings has affirmed Sri Lanka-based People’s Insurance PLC’s National Insurer Financial Strength (IFS) Rating at ‘A+(lka)’. The Outlook is Stable.
KEY RATING DRIVERS
The affirmation reflects the insurer’s ‘Moderate’ business profile compared with other Fitch-rated insurers in Sri Lanka and its satisfactory capital position as well as financial performance. The Stable Outlook reflects our expectation of a normalisation in the insurer’s capital and earnings metrics after benefiting from low insurance claims due to mobility restrictions caused by the Covid-19 pandemic.
People’s Insurance’s regulatory risk-based capital (RBC) adequacy ratio strengthened to 282% in 1H21 and 304% in 2020, from 248% in 2019 (2018: 237%), buoyed mainly by the low motor insurance claims following Covid lockdowns. The agency expects People’s Insurance to maintain the RBC ratio above 220%, well above the regulatory minimum of 120%. Even so, the ratio will moderate gradually from current levels over the medium term as insurance claims recover from the atypically low levels in 2020.
Financial performance, measured by the combined ratio, improved to 83% in 2020 from 97% in 2019 (2018: 96%), resulting mainly from the reduced motor claims following Covid lockdowns. The combined ratio moderated gradually to around 91% in 1H21, and we expect a further normalization in the near term, as the frequency of motor claims is likely to increase with the relaxation of travel restrictions.
Fitch expects People’s Insurance to maintain the combined ratio below that of the industry in the medium term, helped by a low-cost window-office distribution strategy that keeps the expense ratio well under control. People’s Insurance operates mainly through more than 140 window offices placed inside the branches of its immediate parent, People’s Leasing & Finance PLC (PLC, A+(lka)/Stable), and its ultimate parent, People’s Bank (Sri Lanka) (AA-(lka)/Stable).