Insurance industry consolidation looming
Some nine insurance firms have split into two – life and general – in a process which will see them undergo a comparable consolidation to that of the finance sector in the midterm, industry officials say.
Already AIA Insurance has sold its general business (motor insurance, etc) to Janashakthi Insurance. Analysts say that large insurers with bigger scale will take up general insurance arms of their smaller counterparts. The regulator, Insurance Board of Sri Lankan (IBSL) in mandating all insurers to split into two entities which will see their life and general segments functioning as separate business has led to this consolidation.
An industry official added that the structure for the split with Life and the Non Life Insurance (general) businesses will shrink the asset base of these firms. “Therefore not all firms would want to stay in this business or some may want to focus only on either life or general insurance. With this segregation, some firms may be sold or merged as they may be too small after the split happens.”
Insurance company CEOs also agree saying that there needs to be consolidation. “Smaller composite insurers would like to continue with life insurance and do away with their general insurance companies”, a CEO of major insurer said. He said that since general insurance businesses need scale, large firms (eg; Janashakthi) will be interested in similar entities. The new regulatory measures are imposed to exempt risks of one business from another and as per the provisions of the Regulation of Insurance Industry (Amendment) Act No. 03 of 2011, composite insurance companies are required to segregate their life insurance and general insurance into two separate companies. The regulations are to increase the risk based capital (RBC) to Rs. 500 million per class of business Life and Non Life Insurance business.
Sri Lanka’s insurance industry consists of 21 companies of which 12 companies engage in composite insurance (Life and Non Life), and six transact only Non-Life. Three companies carry out specialist life business.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.
Only two more insurance companies – LOLC and SLIC are yet to segregate, but SLIC has been exempted by the IBSL because it’s a state agency – a contentious issue amongst the rest of the industry as it doesn’t provide an equal playing field.