Softlogic Life Insurance PLC

ICRA Lanka reaffirms the Insurance Financial Strength rating of Softlogic Life Insurance PLC

InstrumentRated Amount                   (LKR Mn)Outstanding Amount            (LKR Mn)Rating Action
Insurance Financial Strength ratingN/AN/A[SL]A (Stable); reaffirmed

Rating action

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 is Stable.


The rating factors in the Company’s position as the second  largest life insurance company in Sri Lanka in terms of Gross Written Premium (GWP), its high GWP growth of 28% YoY compared to the industry average of 21% YoY in FY2021, and healthy business performance indicators. The high growth resulted in a rise in its market share in terms of GWP to 16.1% in December 2021 from 15.2% in December 2020.  The rating also factors in the expected operational and managerial support from the Softlogic group. Softlogic Capital PLC (rated [SL]BBB+(stable outlook), a subsidiary holding company of Softlogic Holdings PLC (SHL), owns a 51.72% shareholding in SLI as at March 2022. The rating further factors in SLI’s healthy earnings profile with a return on equity (RoE) of 20.5% in FY2021 (16.8% in FY2020). The rating also factors in the adequate capital profile with risk-based capital adequacy ratio (CAR) of 343% as of March 2022 vis-à-vis 395% in December 2021 The solvency is envisaged to remain adequate going forward to support the Company’s growth plan (around 18-20% YoY GWP growth in CY2022-CY2024).

The rating is constrained by the severe economic crisis in Sri Lanka, which is envisaged to negatively impact short-term industry prospects. Moreover, the rating takes note of the USD exposures in SLI’s investment portfolio which are mainly towards International Sovereign Bonds (ISBs) and Sri Lanka Development Bonds (SLDBs). However, SLI has decided to accept repayments in LKR terms on these borrowings. Nonetheless, ICRA Lanka is cognizant of the higher market risk of the investment portfolio due to the Sri Lankan government’s constrained fiscal position and high inflationary expectations in CY2022.

ICRA Lanka is also cognizant of the large capital expenditure, high leverage and near term liquidity needs of the Softlogic group, which limits SHL (rated [SL] BBB- (Negative)) from extending any significant financial support over the medium term. SLI, however is expected to continue to leverage on the operational synergies with the Softlogic group. Going forward, the ability of SLI to maintain its market position, along with a healthy earnings and capital profile would be crucial from a rating’s perspective.

Outlook: Stable

ICRA Lanka believes that SLI’s risk profile may be impacted by the adverse macro outlook in the near term. The outlook may be revised to ‘Positive’ in case of steady improvement in the earnings and capitalization of the Company, going forward. The outlook may be revised to ‘Negative’ in case of a deterioration in the Softlogic group’s credit risk profile requiring higher dividends to be up streamed by SLI or a significant weakening in the profitability and solvency of the Company.

Key rating drivers

Credit strengths

SLI’s market share continues to improve: SLI’s GWP grew at a healthy pace of 28% YoY to LKR 20,053 Mn in FY2021 compared to 25% YoY to LKR 15,660 Mn in FY2020. ICRA Lanka notes that that the Company has been able to maintain an above industry average YoY growth of 21% and 16% in CY2021 and CY2020, respectively, resulting in a rapid expansion of its market share to 16.1% in December 2021  (15.2% in Dec-20). The Company is the second largest life insurer in Sri Lanka in terms of GWP, and its healthy performance is driven by its business model which focuses on niche customer segments along with a differentiated product range, digital channel and operational efficiency.

Healthy business performance indicators: SLI’s first year persistency rate was 85% in FY2021 and 83% in FY2020, at a higher level than the industry average (about 60-70%). The higher persistency levels resulted in an increase in the renewal premium to LKR 9,340 Mn in FY2021  from LKR 7,061 Mn in FY2020 . This was on account of its focused target marketing and effective customer retention strategies, resulting in lower rate of lapses. The average premium per policy was LKR 138,983 in FY2021 at a higher level than peers (industry average is LKR 35,000-60,000). The higher premium per policy is due to the target customer segment in the mid to high income categories serviced by the Agency channel.

Healthy profitability supported by an underwriting surplus: The underwriting surplus (including management expenses) grew by 25% YoY to LKR 4,517 Mn in FY2021 from LKR 3,626 Mn in FY2020 (2,307 in FY2019). The claims ratio increased to 33.1% in 3M FY2022 and  32.4% in FY2021 largely due to Covid-19 related claims vis-à-vis 25.9% in FY2020. The company has been able to contain its operating expenses due to a technology platform for sales, distribution and operational management, which has enabled it to scale. Hence, the combined ratio stood at 65.4% in 3M FY2022 and 76.2% in FY2021 (74.9% in FY2020). Due to growth in the fund base, the net investment income grew to LKR 2,755 Mn in FY2021 from LKR 2,270 Mn in FY2020. Overall, the company was able to report a net profit of LKR 2,105 Mn vis-à-vis LKR 1,521 Mn in FY2020. The RoE and RoA stood at 20.5% and 5.8%, respectively, in FY2021 (16.8% and 5.6% in FY2020). Going forward, ICRA Lanka expects SLI’s healthy profitability to provide support for the company’s future growth through internal generation.

Experienced management team, with operational and managerial support from the Softlogic group: As part of the Softlogic group, the parent company, provides support from the group entities; and the ability to leverage synergies between different business units, including the healthcare segment comprising of the Asiri Hospital Chain. However, support towards other entities in the group limits Softlogic Holdings PLC (SHP, rated BBB-/negative) from extending any significant financial support in the near to medium term.  SLI also has a professional and well experienced management team and a healthy governance structure with 7 of the 8 board directors being non-executive and 3 directors being independent.

Adequate capital profile: The risk-based CAR stood at 343% in Mar-22 (395% in Dec-21), above the regulatory limit of 120%. The company was able to augment its capital profile in FY2020 through a financial re-insurance transaction with Munich Re (LKR 2.8 Bn) and a sub-debt transaction with development agencies Finnfund and Norfund (LKR 2.8 Bn). ICRA Lanka is cognizant that the high growth outlook of SLI may pressure its capitalization and further notes that the Fin-Re transaction requires periodic repayments subject to the emergence/sufficiency of future surplus. Nonetheless, the solvency is expected to remain adequate, supported by the envisaged internal accruals.

Credit challenges

Effects of the economic crisis on industry prospects: The Sri Lankan economy is currently undergoing a severe economic crisis, mainly due to the Covid-19 pandemic and a hefty foreign debt burden.  Sri Lanka’s GDP is expected to contract by 7% YoY in CY2022 due to the adverse macro situation as per the International Monetary Fund (IMF). The same may impact the life insurance sector growth in the near to medium term. However, ICRA Lanka envisages the growth to improve gradually driven by low insurance penetration and higher demand for private sector healthcare.

USD exposures in the investment book led to higher market risk profile: The total investment book stood at LKR 36.7 Bn in Mar-22 vis-à-vis LKR 34.2 Bn in Dec-21. Around LKR 27.3 Bn of the portfolio is invested in domestic securities, whilst LKR 10.1 Bn (about USD 33 Mn) is invested in USD denominated investments as of Mar-22. The dollar denominated investments are mostly in ISBs (exposure of LKR 3.4 Bn) and SLDBs (an exposure of about LKR 5 Bn). Currently, the Sri Lankan government has stopped repayment on all its USD borrowings due to low forex reserves. However, the government is willing to provide repayments in LKR terms, and same is acceptable to SLI.  Nonetheless, ICRA Lanka takes note of the constrained fiscal position of the Sri Lankan government and the galloping inflation at present (58.9% and 45.3% in May and June 2022, respectively), which reduces the real value of fixed income investments (accounting for 86% of the investment portfolio in March 2022). The same is expected to impact SLI’s market risk profile.

Analytical approach: For arriving at the ratings, ICRA has applied its ratings methodologies as indicated below:

Links to applicable criteria:  ICRA Lanka’s Insurance Financial Strength Rating Methodology

About the Company:

Softlogic Life Insurance PLC, formally known as Asian Alliance Insurance PLC commenced operations in December 1999 and had evolved into a composite insurance solutions provider with a sizeable market share in the life insurance segment. The Company catered to a clientele that consisted of corporates and individuals both in the Life and Non-life businesses through an extensive network of regional distribution offices located throughout Sri Lanka. The Company was acquired by the diversified conglomerate, the Softlogic Group in 2011. Owing to a change in the regulations in 2014, the general insurance and the life insurance businesses were segregated with the former becoming a step-down subsidiary of the latter. In October 2016, Company divested its entire stake in the general insurance business and the life insurance company was renamed as Softlogic Life Insurance PLC. As in March 2022, Dalvik Inclusion Private Limited, a subsidiary of Leapfrog Investments (an institutional investor with exposure to the financial services and healthcare sectors) and Milford Ceylon (a Mauritius-based fund) have invested in a significant minority (about 19% each) in the Company.

During the financial year ended December 31, 2021, SLI reported a net profit of LKR 2.1 Bn on a Gross Written Premium of LKR 20.0 Bn compared to a net profit of LKR 1.5 Bn on a Gross Written Premium of LKR 15.7 Bn for the corresponding period of the previous fiscal year. In 3M FY2022, SLI reported a net profit of LKR 502 Mn on a Gross Written Premium of LKR 5.8 Bn compared to a net profit LKR 416 Mn on a Gross Written Premium of LKR 4.8 Bn in 3M FY2021.

Key financial indicators (Audited)
LKR MnFY2020FY20213M FY2021*3M FY2022*
Gross Written Premium (GWP)15,66020,0534,7615,804
Net Earned Premium (NEP)13,78818,1964,3215,291
Underwriting Surplus^3,6264,5171,200476
Profit After Tax1,5212,105416502
Reported Net Worth9,93610,5889,2459,555
Claims Ratio25.9%32.4%27.7%33.1%
Total Expense ratio49.1%43.7%42.3%32.3%
Combined Ratio**74.9%76.2%70.0%65.4%
Capital Adequacy Ratio302%395%307%343%
Return on Equity – Reported16.8%20.5%17.4%19.9%

* Unaudited  **Combined ratio is calculated inclusive of maturities and surrenders *** RoE is annualized in 3M FY2021 and 3M FY2022. ^Underwriting surplus includes management expenses

Rating history for last three years:
Apsara Thurairetnam
Senior Analyst

Sahil Udani
Assistant Vice President


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