Sri Lanka’s insurance sector operates within a “developing regulatory environment with limited transparency,” according to Fitch Ratings.
The Insurance Regulatory Commission of Sri Lanka (IRCSL) oversees the sector and implemented a risk-based capital (RBC) regime in 2015, fully adopted by 2016. This framework requires insurers to maintain a minimum RBC ratio of 120%. Insurers with ratios below 160% must present a plan to improve capitalization levels. Additionally, the IRCSL mandates the segregation of life and non-life insurance businesses and requires insurers to list on the local stock exchange, although exemptions apply to companies whose parent firms are already publicly listed elsewhere.
Fitch highlights that Sri Lanka’s insurance market remains underdeveloped, with one of the lowest penetration rates in Asia. The market is dominated by basic products in both life and non-life segments.
In the non-life sector, motor insurance constitutes over half of the premiums. However, prolonged restrictions on vehicle imports have driven insurers to diversify into health, fire, property, and SME insurance, aided by increased construction activity and business expansion.
In the life insurance sector, traditional whole-life and endowment policies with investment features are prevalent. While pure protection policies are gradually gaining popularity, they continue to lag behind demand levels seen in other Asian markets.
The report underscores both the challenges and opportunities within Sri Lanka’s insurance industry, as insurers adapt to regulatory demands and evolving market conditions.
