Softlogic Life Insurance PLC

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

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 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 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. Further, the Company expects Tier 2 capital infusion of about LKR 2.74 Bn in FY2020, which would augment capitalization further. Hence, ICRA Lanka envisages solvency to remain adequate to support Company’s growth plan (20-30% YoY growth in GWP) in the medium term.

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. The rating also factors in the impact of the Covid-19 pandemic, with business operations shutdown during the lockdown period in March and April 2020. Moreover, it is expected that the lackluster economic prospects would impede Company’s growth and profitability in FY2020. Nonetheless, SLI is expected to recover due to its scale, group synergies, and also as the demand for insurance products, mainly protection products, is likely to increase in the future due to the pandemic.

Outlook: Stable

ICRA Lanka believes that SLI’s current solvency and healthy business indicators support near to medium term growth. The outlook may be revised to ‘Positive’ in case of steady improvement in the capitalization and earnings of the Company. 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 solvency and profitability of SLI.

Key rating drivers

Credit strengths

Low life insurance penetration to support business growth in the long term: The life insurance industry in Sri Lanka is largely underpenetrated compared to regional peers. In CY[1]2018, penetration ratio of the life insurance business in Sri Lanka was recorded at 0.56% (CY2017: 0.53%) which was lower compared to Asian countries such as India (2.74%), Philippines (1.26%), Indonesia (1.49%), and Vietnam (1.58%).  ICRA Lanka expects a positive growth outlook over the longer term as the Sri Lankan life insurance industry would benefit from favourable macro factors such as increasing disposable income, increasing demand for private sector healthcare, as well as the higher awareness and need for protection products.

Steady increase in SLI’s market share: SLI’s gross written premium (GWP) grew at a high pace of 25% YoY to LKR 12,531 Mn in FY2019 (33% YoY growth to LKR 10,006 Mn in FY2018) compared to the industry average growth of 10% and12% in CY2019 and CY2018, respectively.  SLI’s higher growth is attributable to its business model which focuses on niche customer segments along with differentiated endowment/protection products. SLI’s higher growth resulted in a rise in its market share to 16.2% in March 2020 compared to 14.0% in December 2019 (12.6% in December 2018). SLI was the fourth largest life insurer in terms of GWP in FY2019, and subsequently overtook its nearest competitor AIA Life to become the third largest life insurer in Q1 FY2020. ICRA Lanka also notes that SLI’s growth has come at the expense of peers, as the Company has been innovative to capture opportunities in the life insurance sector.

Healthy business performance indicators: SLI’s first year persistency rate was 85% in FY2019 and 84% in FY2018, which is higher than peers. The company’s higher persistency is driven by its focused target marketing and product positioning, resulting in lower rate of lapses. The Company caters primarily to the premium segment of customers and, hence is characterized by above average ticket sizes; average premium per policy was LKR 137,032 in FY2019 (industry average is between LKR 35,000- 60,000). The pandemic limited business activities during the lockdown period, which may impede FY2020 performance. Nonetheless, ICRA Lanka expects the Company’s business model, strategy and expected rise in demand for protection products as a result of the pandemic, to support a healthy GWP growth in the post-pandemic stage (in the range of 20-30% GWP growth per annum). The ability to grow amidst a weaker economic environment would be a key monitorable.

Strong profitability supported by underwriting surplus:  Underwriting surplus grew by 35.1% YoY to LKR 2,308 Mn in FY2019 (24.1% YoY growth to LKR 1,708 Mn in FY2018). The improvement in underwriting surplus was driven by a reduction in its combined ratio to 81.0% in FY2019 (76.0% in Q1 FY2020) from 82.3% in FY2018. Consequently, SLI reported a PAT of LKR 2,173 Mn in FY2019 vis-à-vis a PAT of LKR 3,336 Mn in FY2018 (inclusive of a deferred tax gain of LKR 2,241 Mn). As a result, Company’s PAT/ Net Premium Earned (NPE) declined to 18.8% in FY2019 (36.0% in FY2018) and 15.8% in Q1 FY2020. Company reported an adjusted RoE and RoA (net of deferred tax and fair value gains) of 28.5% and 9.8%, respectively, in FY2019 (21.1% and 5.8% in FY2018). The robust profitability indicators and underwriting performance provide support for the Company’s future growth through strong internal generation.

Operational, managerial and financial 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. Support towards other entities in the group, limits Softlogic Holdings PLC in extending any significant financial support in the near term.  However, it is envisaged that SHL would adequately support, if required, in the long term.

Credit challenges

Solvency indicators moderate compared to peers: Risk weighted capital adequacy ratio (CAR) of the Company as in March 2020 was 203% (above the regulatory minimum of 120%); CAR in December 2019 and December 2018 stood at 183% and 199%, respectively. Company received external funding of LKR 2.7 Mn in terms of a Financial Re-insurance Transaction from Munich Re, one of its re-insurance partners, and was able to boost Tier 1 capital in Q1 FY2020. Company also has plans to augment Tier 2 capital via sub-debt of approximately LKR 2.74 Bn in FY2020. The funding is envisaged to increase company’s CAR to around 254%. ICRA Lanka expects the aggressive growth outlook of SLI to exert some pressure on Company’s capitalization profile. Nonetheless, solvency is expected to remain adequate, supported by internal accruals to support business growth.

Increase in claims: SLI’s claims ratio[2] (as percentage of NPE) rose to 28.5% in Q1 FY2020 vis-à-vis 26.0% in FY2019 (FY2018: 25.2%). The increase in claims could be attributed to changes in business mix and a seasoning product portfolio. The impact of the pandemic on overall claims has been insignificant so far; claims ratio may remain at a similar level as the portfolio seasons further.

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below. Links to applicable criteria:

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 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 2020, Leapfrog (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 year ended December 31, 2019, SLI reported a net profit of LKR 2.2 Bn on a Gross Written Premium of LKR 12.5 Bn compared to a net profit of LKR 3.3 Bn (inclusive of deferred tax) on a Gross Written Premium of LKR 10.0 Bn for the corresponding period of the previous fiscal year. In Q1 FY2020, Company reported a net profit of LKR 480 Mn on a Gross Written Premium of LKR 3.5 Bn.

[1] Calendar Year

[2] Claims ratio is inclusive of maturities and surrenders

Key financial indicators (audited)
Rating history for last three years:


Ms. Apsara Thurairetnam +94 11 4339907 apsara@icralanka.comMr. Niraj Jalan +91 33 71501146


Mr. W. Don Barnabas +94 11 4339907 


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