Lankan insurance industry slated to undergo similar consolidation to that of finance sector
Sri Lanka’s insurance industry is slated to undergo a similar consolidation to that of the finance sector which is now in that process when new regulatory measures are imposed early next year, industry experts say.
“The (insurance) regulations (effective) February 2015 are to increase the risk based capital (RBC) to Rs. 500 million per class of business – Life and Non Life Insurance business, from Rs. 100 million,” one industry analyst told the Business Times.
Some insurance firms agreed, saying that the structure for the split with Life and the Non Life Insurance (general) businesses will shrink the asset base of these firms. “As a result not all would want to stay in this business or some may want to concentrate only on either life or general insurance. As a result some firms may be sold or merged as they may be too small after the split happens,” Prakash Schaffter, CEO Janashakthi told the Business Times on the sidelines of a media conference this week to announce their 2013 results.
He said Janashakthi Insurance was ready to split its life and general businesses, later list the second unit and also move to a RBC.
One of the key steps taken towards splitting by the company, he said was that their Sales, Claims and Underwriting functions which have been managed separately to a large extent were further segregated during the year. “The company also created a new post and recruited a Deputy CEO during the year.
An internal task force was appointed to ensure regulatory compliance and a smooth operational transition by 2015. Moreover, a restructure of the Life business was initiated during the year to place the Life business on a stronger platform for enhanced growth and market leadership in 2015. The comprehensive programme of restructure which is currently underway would include strategic, marketing as well as operational changes in the Life business.”
The segregation of some of the functions such as Sales and Marketing will require efforts to manage these incremental costs, he said. “We will look towards the positive opportunities that we foresee, such as the greater focus on the separate segments of businesses which we believe will eventually result in greater effectiveness and enhanced productivity and thus growth of profitability in both segregated businesses.”
Sri Lanka’s insurance industry consists of 21 companies as at 31st December, 2013, of which 12 companies engage in composite insurance (Life and Non Life), and six transact only Non Life. This number of companies for a population of just over 20 million has made the insurance industry in Sri Lanka intensely competitive. Despite the presence of so many entities, the penetration of Life Insurance still stands at a mere 12.1 per cent of the population, and at 29.1 per cent of the working population.
Meanwhile Janashakthi Insurance reached its highest ever consolidated revenue of Rs.9.9 billion reflecting 20 per cent growth, the results for 2013 showed. The company also saw its highest Profit after Tax of Rs. 1 billion and largest recorded customer base of 700,000 customers.
The company achieved these results while honouring over Rs. 4.4 billion in claims over the past year alone, according to Mr. Schaffter.
Janashakthi also reported a total asset base of Rs. 18.6 billion, while its stated capital of Rs. 1.49 billion is the highest in the category.
In addition, the company achieved Rs. 8.7 billion Gross Written Premium more than 75 per cent of which is made up of non-life premiums, reflecting the company’s renewed focus on diversification.