Overview of Insurance Industry


Administration of the Regulation of Insurance Industry Act
Legislation

The object and responsibility of the Insurance Board of Sri Lanka (hereinafter referred to as “the Board”) is to ensure that insurance business in Sri Lanka is transacted with integrity and in a professional and prudent manner with a view to safeguarding the interests of policyholders and potential policyholders.

The Regulation of Insurance Industry Act, No. 43 of 2000 (hereinafter referred to as “the Act”) provides the relevant legal framework for the regulation and supervision of insurance companies, insurance brokering companies, insurance agents and loss adjusters.

The  Act  is  amended  by  the  Regulation  of  Insurance  Industry
(Amendment) Acts, Nos. 27 of 2007 and 03 of 2011.

Many amendments have been made to the subordinate legislation promulgated under the Act during the year and same are as described in the Regulatory Review of this report.

Market Structure

In terms of Section 12 of the Act, subject to the provisions of the Act, no person shall carry on insurance business in Sri Lanka unless such person is for the time being registered or deemed to be registered under the Act to carry on insurance business.

According to Section 13 of the Act, a person desires of engaging in insurance business in Sri Lanka should incorporate a public company under the Companies Act, No. 7 of 2007 and register and obtain license as an insurer under the Act after having fulfilled all statutory requirements specified in the Act.

21 companies were in operation as insurers as at the end of the year and the suspension of registration imposed on Ceylinco Takaful Limited continues from 2009. Chart 1 depicts the classes of insurance business companies were engaged in.  Out of the 21 companies in operation,
12 companies were composite insurers, carrying on both long term insurance business and general insurance business, 3  companies were carrying on long term insurance business and 6 companies were carrying on general insurance business.

In order to have a smooth transition of the insurance business, the Board issued guidelines on segregation of composite insurers in consultation with the industry.

Section  53  of  the  Regulation  of  Insurance  Industry  Amendment Act, No. 3 of 2011 (hereinafter referred to as the “Amendment Act”) requires composite insurance companies to separate the two classes of insurance businesses into two separate companies (hereinafter referred to as “segregated insurance companies/ segregated insurance company”) on or before February 2015.

During the year under review, applications submitted by composite insurers to comply with section 53 of the Amendment Act were evaluated and as at the end of the year the Board granted registration to 8 companies. However, out of the eight new companies Board has issued licenses to 07 new companies with effect from 1st January 2015 and one company has been directed to comply with required capital in order for the Board to issue license.

Chart 1 - Classes of Insurance Business Carried on by Insurers

 

Chart 1

  

An insurance broker is a company incorporated under the Companies Act, No. 07 of 2007 and registered under the Act to carry on insurance brokering  business.  Insurance  Brokers  function  as  intermediaries for the placing of insurance business for or on behalf of an insurer, a policyholder or a proposer for insurance or reinsurance, with an insurance company or reinsurance company, in expectation of a payment by way of brokerage or commission.

At the end of the year, there were 58 companies registered as insurance brokers. Out of the said companies, 39 companies were registered in both long term and general insurance brokering business while 19 companies were registered only in general insurance brokering business. Chart 2 depicts the classes of insurance brokering business insurance brokers carried on during the year.

 

 Chart 2 - Classes of insurance broking business carried out by the brokers

Chart 2

 

Insurance Agents are persons registered with an insurer or an insurance broker registered under the Act and who in consideration of a commission solicits or procures insurance business for such insurer or insurance broker. Qualifications for registration have been specified by the Board.

As per Section 34 of the Act insurance agents are one of the important distribution channels in which insurers procure insurance business.
As per information given by insurers, the total number of individuals recruited  as  insurance  agents  during  the  year  was  approximately
17,018, a 9.05% increase from the previous year (15,606).

Total number of individual insurance agents representing insurers as at the end of year was approximately 42,958 a 11.19% increase from the previous year 38,635.

Chart 3 depicts insurance agents registered with insurance companies.

 

Chart 3 -  Individual Insurance agents registered with insurers

Chart 3

 

There are approximately 385 individual insurance agents registered with insurance brokering companies during last year.

Company Status and Changes in Capital

Out of the insurers, 07 companies were listed on the Colombo Stock Exchange namely, Ceylinco Insurance PLC, AIA Insurance Lanka PLC, Union Assurance PLC, Asian Alliance Insurance PLC, HNB Assurance PLC, Amana Takaful PLC and Janashakthi Insurance PLC. Chart 4 depicts the percentage of listed and non-listed insurers.

Chart 4 - Status on ‘listed/non listed’ insurers

Chart 4

 

The Amendment Act requires insurers to be listed on a stock exchange licensed under the Securities and Exchange Commission of Sri Lanka Act, No. 36 of 1987.   Composite insurance companies are required to segregate its business into two separate companies on or before February 2015 and obtain a listing on or before February 2016.

A new company registered as an insurer after the Amendment Act came into effect is required to be listed on a stock exchange licensed under the Securities and Exchange Commission of Sri Lanka Act, No.36 of 1987 within a period of three years of being issued a licence by the Board.

The stated capital of insurers registered prior to June 2011 has been required by the Board to be increased to a minimum of rupees Five Hundred Million, for a particular class of insurance business on or before February 2015.

Insurance companies registered subsequent to June 2011 have a stated capital not less than Rupees Five Hundred Million.

The Board is also in the process of introducing the Risk Based Capital Rules for insurers. These Rules will replace the current Solvency Margin Rules and will be mandated to comply from year 2016.

In the case of insurance brokers, the Board has required insurance brokers to have a paid up share capital of not less than Two Million Five Hundred Thousand on or before 31st December 2014. 

Levy of a Cess from Insurers

In terms of Section 7 of the ACt, an order was made by the Hon. Ministray of Finance and Planning for the levy of a Cess for the creation of a Policyholders’ Protection Fund. By Gazette Notification No. 1244/5 on 9th July 2002 it has specified 0.2% of the total net premium of long term insurance business and 0.4% of the total net premium of general insurance business to be credited to the Policyholders’ Protection Fund. The collection of the Cess from insurers commenced with effect from January 2003 and the amount of Cess collected for the year 2014 was Rs. 274 Mn. Table 1 depicts the movement of the Cess and the Policyholders’ Protection Fund.

 

 

The Cess collected from insurers is deposited into the Policyholders’ Protection Fund, established in terms of Section 103 of the Act. This Fund may be utilized, inter alia, for the following purposes in so far as it would be for the benefit of the policyholders and potential policyholders  -

 

a)   defraying the expenditure incurred in creating awareness of the insurance industry amongst the public and other expenditure incurred in the development of the insurance industry; and

 

b)   defraying the expenditure incurred  by the Board in the exercise, discharge and performance of its powers, functions and duties.

 

The amount lying to the credit of the Policyholders’ Protection Fund is invested in government securities. The accumulated amount in the Fund as at 31st December 2014 is Rs.2,185 million a 22.89% increase from the previous year (Rs 1,778 million).

 Table 1 - Cess and the Policyholders’ Protection Fund

 Table 1 

 

Insurance Tariff

There are no tariffs at present on any class of general insurance business. Tariffs which existed for motor insurance, fire insurance and workmen’s compensation insurance were de-tariffed with effect from 1 January 2002, 2005 and 2007 respectively.

Exemptions to the application of the Act

In terms of Section 12(3) of the Act, provisions of the Act does not apply to the Agriculture and Agrarian Insurance Board established under the Agriculture and Agrarian Insurance Act, No. 20 of 1999, the Sri Lanka Export Credit Insurance Corporation established by the Sri Lanka Export Credit Insurance Corporation Act, No. 15 of 1978 and the Social Security Board established under the Social Security Board Act, No. 17 of 1996.  

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