Sri Lanka insurers may escape sweeping downgrades over govt. move: Fitch

Dec 21, 2007 (LBO) – Fitch Ratings says Sri Lankan insurance firms may avoid sweeping downgrades after the government partially rolled back plans to force firms to re-insure with the state. "It is now envisaged that no insurance ratings in Sri Lanka will be affected by the introduction of the fund." Sri Lanka only has a 'BB-' below-investment-grade or 'junk bond' credit rating compared to better rated re-insurers that covered the risks of top insurers in the island.

"When plans for the fund were first announced in the November 2006 budget, Fitch was concerned that they would reduce the credit quality of Sri Lankan primary insurers," the rating agency said in a statement Friday.

"Such a fund would have been of lower credit quality than many Sri Lankan insurers' existing reinsurers, as the International Scale credit rating of Sri Lanka is 'BB-".

But a new announcement has "allayed this fear", Fitch said.

The original proposal was for 50 percent of all reinsurance premiums to be paid into a national reinsurance fund underwritten by the Sri Lankan government.

Fitch said it was concerned because the Sri Lankan insurance relied heavily on reinsurance to support its loss