Fitch Ratings has downgraded
The recalibration is to reflect changes in the relative creditworthiness among Sri Lankan issuers following Fitch's downgrade of
National rating scales are a risk ranking of issuers in a particular market designed to help local investors differentiate risk.
The National IFS Ratings of Sri Lankan insurers take into consideration their creditworthiness relative to other issuers in the country.
Key Rating Drivers
The two-notch downgrade of CICPL's National IFS Rating reflects the downgrade of the sovereign's Long-Term Local-Currency IDR, the recalibration of the national rating scale and its relative creditworthiness among Sri Lankan issuers.
We believe CICPL's investment and liquidity risks have increased due to the weaker credit profile of the sovereign and the subsequent rating action on various financial institutions. For details, see Fitch Downgrades 10 Sri Lankan Banks' Ratings, published
CICPL's investment portfolio, similar to that of other insurers in the country, is dominated by fixed-income securities issued or guaranteed by the government, and deposits and securities issued by local banks, non-bank financial institutions and corporations. Fitch maintains the ratings of all domestic Sri Lankan banks on RWN amid the likelihood of capital and funding stress as the default risk on domestic debt increases while access to foreign-currency funding remains constrained.
We have maintained CICPL's rating on RWN to reflect the potential for the insurer's creditworthiness relative to other entities on the Sri Lankan National Rating scale to further deteriorate amid high investment and liquidity risks, pressure on its regulatory capital position and a weaker financial performance outlook. The heightened investment risks and earnings pressure amid the weak operating environment could affect the insurer's regulatory capital profile.
The rating reflects CICPL's 'Moderate' company profile compared with that of other insurers in
RATING SENSITIVITIES
We expect to resolve the RWN once the impact of
Factors that could, individually or collectively, lead to negative rating action/downgrade:
inability to access foreign- or local-currency assets to meet CICPL's liabilities, including any restrictions by the government;
rising investment and asset risks, including a downgrade of the ratings of financial institutions or the sovereign;
deterioration in the regulatory RBC ratio to below 190% for a sustained period;
sustained deterioration in financial performance, including the combined ratio remaining above 110%, or weaker risk-management practices;
significant weakening in CICPL's business profile, for instance, due to a weaker franchise, operating scale or business risk profile.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
there is limited scope for upward rating action because of the RWN.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Report of Issuer's Appeal
The issuer appealed the decision of the original rating committee.
In accordance with Fitch Ratings' policies, the issuer's request was reviewed by an appeal review panel, which determined that an appeal committee was not warranted due to insufficient new information.
Therefore, the outcome of the original committee, as detailed within this rating action commentary, was not affected.
RATING ACTIONS
Entity / Debt
Rating
Prior
Natl Ins Fin Str
BBB(lka)
Downgrade
A-(lka)
Page
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VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
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