Sri Lanka interest rate increases seen hitting insurance growth

Mar 02, 2012 (LBO) - The rise in interest rates in Sri Lanka, which began recently, could reduce the growth of the insurance market as it reduces the affordability of insurance products, RAM Ratings Lanka said. However, the rating agency said that despite the premium growth, most general insurers’ underwriting performance continued to be weak, affected by intense price competition within the industry as well as rising overheads in line with network expansion.

"In contrast, the life insurance segment recorded improving profitability indicators and continued to uphold the overall underwriting profitability of composite insurers." However, they said the outlook for the insurance sector remains positive, with growth expected to be driven mainly by the life-insurance segment.

This is because of the low penetration of life insurance in Sri Lanka, the rating agency said in a report on the sector.

"That said, a continuous rise in interest rates coupled with increasing inflationary pressures could reduce the affordability of life-insurance products, thereby softening this growth," it said.

"On the other hand, competition is anticipated to remain intense in the general segment, thus e