The outlook for Sri Lankan non-life insurers' underwriting profitability is optimistic and gradually likely to improve as they enhance their practices and shift focus to more profitable non-motor segments according to a new Fitch Ratings report about the island nation's non-life insurance industry published in January 2025.
The shift includes adjusting policy pricing, particularly for motor and medical insurance, to better cope with inflation and rising claim costs.
Fitch Ratings report Sri Lanka Non-Life Insurance Dashboard: January 2025 says, “Motor insurance profitability in Sri Lanka faces challenges due to regulatory changes requiring full premium remittance to the National Insurance Trust Fund Board. Non-life insurers have also been diversifying into non-motor segments such as health insurance due to prolonged import restrictions on motor vehicles. This diversification led to an 11% increase in non-motor gross premiums in 2023.
“Investment and liquidity risks have decreased following the upgrade of Sri Lanka’s sovereign rating in December 2024. Meanwhile, the upcoming implementation of IFRS 17 in January 2026 is likely to enhance transparency and comparability in the insurance market.”
Underwriting performance by Sri Lankan insurers has been under pressure since 2022, driven by inflationary pressures, rising administrative costs and increased claim costs due to higher spare part prices and medical costs from the depreciation of the Sri Lankan rupee.
The profitability of the motor insurance business has been under pressure following the regulatory requirement to remit 100% of premiums to NITF. Insurers could previously retain 88% of motor premiums for strikes, riots, civil commotion and terrorism, a low claim segment.
The 35% commission on remitted premiums provides partial relief, but sustained profitability will hinge on repricing of motor policies to offset the impact of the reduced retention.
Further, prolonged import restrictions on motor vehicles have prompted non-life insurers to gradually diversify their portfolios into non-motor segments such as health and other miscellaneous insurance products. Non-motor gross premiums grew by 11% in 2023, while motor gross premiums declined by 4%.
The non-motor segment’s contribution to gross premiums rose to 47% in 2023 (2022: 44%), largely due to growth in the miscellaneous and health segments.