March 30, 2017 / 6:21 AM / 9 months ago

Fitch Affirms HNB Assurance and HNB General Insurance Ratings

(The following statement was released by the rating agency) COLOMBO, March 30 (Fitch) Fitch Ratings Lanka has affirmed HNB Assurance PLC's (HNBA) National Insurer Financial Strength Rating and National Long-Term Rating at 'A(lka)'. Fitch has also affirmed its subsidiary HNB General Insurance Limited's (HNBGI) National Insurer Financial Strength Rating and National Long-Term Rating at 'A(lka)'. The Outlook on the ratings is Stable. KEY RATING DRIVERS The ratings reflect the Sri Lanka-based insurance group's satisfactory capitalisation in terms of risk-based capital; prudent investment policy; and modest market share. The ratings also take into account synergies gained from using the wider branch network of its parent, Hatton National Bank PLC (HNB, AA-(lka)/Stable); HNBA's importance to the bank in providing bancassurance products; and HNB's 60% stake in the insurance group. The agency considers HNBGI a core subsidiary of HNBA due to HNBGI's significant contribution to HNBA's consolidated top line (47% of GWP in 2016), and the significant operational synergies between HNBA and HNBGI. Fitch believes the capitalisation of life insurer HNBA and its 100%-owned non-life subsidiary HNBGI will remain comfortably above the regulatory minimum of 120%. The risk-based capital (RBC) ratio at HNBA was strong at 445% at end-2016, while HNBGI's ratio had weakened to 168% (282% and 177%, respectively, at end-2015) due to lower profitability resulting from intense competition. Fitch expects HNBA to support HNBGI's capitalisation, as it did in November 2015 by injecting LKR150 million. Management expects to maintain the life and non-life RBC at over 170%. HNBA consolidated pre-tax ROA improved to 5.4% in 2016 from 1.6% 2015, as HNBGI managed to post a profit of LKR47 million following a loss of LKR227 million in 2015. Non-life's 'combined ratio' improved (2016: 107%, 2015: 123%) as management focused on reducing the claims ratio - mainly in the motor segment - by revisiting its pricing and underwriting strategy, as well as moving away from unprofitable tie-ups with financial institutions. Management expects these measures to further improve the 'combined ratio'. HNBA has high exposure to government securities which accounted for 54% invested assets at end-2016. Corporate bonds, all of which were of investment-grade credit quality, represented 25% of invested assets. HNBA has very low exposure to equity, which had come down further to 2% of invested assets by end-2016 (2015: 4%) due to poor equity market performance. HNBA's growth continued to outpace that of the industry in 2016, recording a gross written premium (GWP) growth of 27% and 16% for life and non-life, respectively (19% and 14% for the industry) to achieve a market share of 5.6% and 4.1% in life and non-life segments (5.2% and 4% in 2015). The growth has been aided by increased focus on the individual segments following the split in 2015. RATING SENSITIVITIES Downward rating triggers include deterioration in the RBC ratios of both HNBA and HNBGI to below 160% on a sustained basis, or a weakening in the perceived strategic importance of HNBA and/or HNBGI to HNB. Weakening in the strategic importance of HNBGI to HNBA will lead to a downgrade of HNBGI's ratings. Upgrade rating triggers include improvements in the market shares of HNBA and HNBGI, while maintaining sound capitalisation levels with HNBA's RBC ratio staying above 300% and HNBGI's above 200%, on a sustained basis. Contact: Primary Analyst Kanishka de Silva Analyst +94 112541900 Fitch Ratings Lanka Ltd 15-04 East Tower, World Trade Center Colombo 01, Sri Lanka Secondary Analyst Senior Director Jeffrey Liew +852 2263 9939 Committee Chairperson Siew Wai Wan Senior Director +65 6796 7217 Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(lka)' for National ratings in Sri Lanka. Specific letter grades are not therefore internationally comparable. 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