Sri Lanka’s insurance industry gears for splitting amidst challenges
View(s):Sri Lanka’s insurance industry is to undergo far reaching changes under the proposed legislation of splitting of insurance segments (life and general) of companies into two separate entities by 2015, officials said.
A top Janashakthi Insurance official, who wished to be anonymous, said that there will be an increase in the number of insurance companies through this process.
It would make insurance companies smaller in size and possibly less viable as profitable entities, he added.
He pointed out that that there would be mergers and acquisitions resulting in a reduction in the number of companies in the long run as too many players cannot survive in a slow growing insurance market in Sri Lanka.
However, he noted that the insurers will adjust to doing a single line of business.
The industry will experience vast changes in the next few years under the proposed changes where each business needs a minimum capital requirement of Rs. 500 million, Ramal Jasinghe, CEO of Asian Alliance Insurance and immediate Past President of the Insrance association of Sri Lanka, told the Business Times.
This is requirement under the amendments to the regulation of Insurance industry Act of 2000.
The aim is to enhance the focus and capacity of insurance companies creating an environment for them to penetrate untapped areas of the economy.
He said creating two different institutions, re-allocating staff, recruiting new employees, providing training facilities, setting up accounts and operational units for two different entities within the same group will not be an easy task. The cost for the maintenance and operation will also be costly, he pointed out.
He noted that there are four ways of splitting the insurance company:
1. Holding company: Life and subsidiary – General
2. Holding Company: General and subsidiary – Life
3. Two subsidiaries – Life/General – under one holding company.
4. Two different companies with different shareholders for Life and General
Mr. Jasinghe suggested allowing composite companies to continue and the new companies to set up separate entities.
Meanwhile the MBSL Insurance Company, a fully-owned subsidiary of Merchant Bank of Sri Lanka, is ready to separate the two divisions before the end of this year and to float a rights issue in the Colombo Stock Exchange, Sydney Gajanayake, Managing Director of MBSL Insurance, said.
He asserted that the directive to split life and general insurance into two separate entities will bring positive results and help to save the life fund of insurance companies.
In order to grow its business the company will go for a rights issue of Rs.300 million by way of an IPO by the end of this year.
State-run Sri Lanka Insurance Corporation will split its two businesses before a public listing, a senior official of the company said.
“We are making our plans. Regulator IBSL (Insurance Board of Sri Lanka) has also stipulated that listing is a must,” he said adding that they cannot also list without splitting the corporation into two companies.
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