By Ms Diluka Rodrigo, Partner at Julius & Creasy
A tide of change was introduced to the insurance laws in Sri Lanka in 2011. The most significant of the changes imposed under the new law includes the introduction of additional qualifications for carrying out insurance business in Sri Lanka.
This article is restricted to the aspect of the new law mandating the segregation of life insurance business from general insurance business, by permitting an insurance company to register for only one of the aforesaid businesses, and requiring insurance companies to list on a licensed stock exchange within three years of being issued with a licence.
So the countdown began in 2011, when existing composite insurance companies engaging in both life and general insurance businesses were required to segregate the two classes of insurance business into two separate companies (each having a minimum stated capital of LKR 500 million) by 11 February 2015; and consequently list on a licensed stock exchange by February 2016.
Three insurers still to segregate
However, as at November 2015, three composite insurers have yet to comply with the requirement to segregate. Where existing insurance companies had provided compelling reasons for the inability to comply with the timelines stipulated for segregation, the Insurance Board of Sri Lanka (IBSL) has been flexible on the deadlines provided. Accordingly, two of the aforesaid composite insurers have assured the IBSL of their intention to comply with the law. It appears that the IBSL is withholding punitive action against these insurers on this basis.
Nevertheless, the remaining composite insurer has not provided a similar assurance as aforesaid. It is interesting that the insurance company in question is also the largest state-owned insurer in Sri Lanka.
Recently reported news illustrates that the delay on the part of the last mentioned outstanding composite insurance company has irked the insurance industry; particularly on account of the special privileges granted to state insurers.1 The discontent appears to be fueled by the fact that often no basis is provided for these special privileges which appear to erode the policy of maintaining a level playing field within the industry.
In any event, the legal position remains that no amendment has been made to the law to grant exemptions to any particular insurer from complying with the requirement to segregate or list. Therefore, the deadline for all composite insurers to segregate ended in February 2015. Where no action is taken by the IBSL to ensure that all composite insurers comply with the segregation process urgently, it is possible that the deadline of February 2016, for the purposes of listing, may also not be met.
All eyes are now on the IBSL, waiting to see how the regulator will give effect to the provisions of the amending statute in this regard and uphold its responsibility towards the development, supervision and regulation of the insurance industry in Sri Lanka.