ICRA Lanka Limited has reaffirmed the insurance financial strength rating of [SL]A (pronounced SL A) for Softlogic Life Insurance PLC (SLI or the Company). The outlook on the rating continues to be Stable.
The rating factors in the Company’s position as the third largest life insurance company, a steady increase in its market share (16.2% in March 2020 from 14.0% in December 2019) and its healthy business performance indicators. The rating also factors in the expected operational and managerial support from the Softlogic group (Softlogic Capital PLC, (rated [SL]BBB+ (stable)), a subsidiary holding company of Softlogic Holdings PLC (SHL), has a 51.69% shareholding in SLI as on March 2020).
The rating takes into account SLI’s strong profitability metrics with a return on equity (RoE) of 29.2% in FY2019, mainly driven by a healthy rise in underwriting surplus due to an improvement in its combined ratio. Further, SLI’s capital adequacy ratio (CAR) of 203% as in March 2020 was above the regulatory requirement of 120%, although the same was moderate compared to similar-sized peers.
SLI was able to augment its capital profile in Q1 FY2020 due to funding of LKR 2.7 Bn received via Quota share Financial Reinsurance from Munich Re, one of its re-insurance partners. ICRA Lanka is cognizant of the large capital expenditure and high leverage of the Softlogic group, which limits SHL’s (rated [SL] BBB+ (negative)) ability in extending any significant financial support to SLI in the near term. SLI, however, is expected to leverage on the operational synergies with the Softlogic group, and is envisaged to receive adequate financial support, if required, in the longer term.
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