LRA provides BB1 rating to Asian Alliance Insurance

Lanka Rating Agency (LRA) has assigned a claims-paying ability rating of BB1 (with a stable outlook) to Asian Alliance Insurance Company PLC (AAIC).

The rating reflects the company’s improving financial profile, backed by its growing franchise in the life-insurance business and conservative investments, LRA said. Even though the rating is pressured by the company’s weak underwriting performance in the non-life category, the absence of an asset-liability management process and the competitive and regulatory challenges to be faced in the future, the primary constraint that depressed the rating is AAIC’s minuscule size.

AAIC is a relatively new player in both life and general insurance.

Although the company started out as a general insurer in 1999, the life business has turned out to be its chief revenue spinner.
The adoption of a well-defined marketing strategy in life has enabled the company to capture the sixth position in the life sector in terms of premiums.

Despite its success in this sector, competitive pressure still looms large as rivalry is expected to intensify, especially in light of the company’s diminutive balance sheet; AAIC accounted only for 1% of the domestic insurance industry’s assets as at the end of FYE December 31, 2006.

AAIC’s performance in life has been supported by its investments in gilt-edged securities, which has been lifting its financials over the last five years. As a result, AAIC has been able to trim its cumulative losses, from Rs 188.71 million in FY December 2002 to Rs 82.41 million in FY December 2006.

Furthermore, AAIC’s investments are mostly short-tenured, strengthening its liquidity profile.