LRA Downgrades Instrument Rating Sanasa Life Insurance Company PLC - LKR 200mn Senior Unsecured Redeemable Debentures with "Negative Outlook"

Sanasa Life Insurance Company PLC (“SLC” or “the Company”) has issued LKR~200mn Senior Unsecured Redeemable Debentures. The assigned rating reflects the debenture’s senior unsecured structure, which ranks below secured creditors and statutory preferential claims, but pari passu with other unsecured obligations of the Company. Consequently, the debenture is rated in line with the Company’s entity rating. The entity rating reflects SLC’s weakening fundamentals, characterized by declining market share, compromised profitability, and capital deterioration, leading to reduced capital adequacy and risk absorption capacity. The Company has faced regulatory directives to reconstitute its board and management, including the appointment of a new Chairperson, to strengthen corporate governance. Additionally, the regulator directed SLC to discontinue their main insurance selling product and develop a revised offering with enhanced regulatory compliance. These developments have materially impacted the Company’s business and financial profile. As of 1QCY25, SLC’s market share declined to ~2.3% (CY24: ~3.6%), primarily due to a strategic shift from their main insurance selling product, investment-linked to traditional life insurance products. This transition resulted in a ~38% drop in Gross Written Premiums (GWP) to LKR~1.2bn in 1QCY25 (1QCY24: LKR~1.9bn). During the same period, the Company paid net claims of LKR~636.6mn (CY24: LKR~3,792.3mn; CY23: LKR~2,438.4mn), raising the combined ratio to ~106.6% (CY24: ~97.1%) and leading to an underwriting loss. While CY24 GWP grew by ~30.2% to LKR~6.6bn (CY23: LKR5.1~bn), the Company reported a net loss of LKR~80.6mn (1QCY25: Loss of LKR~5.9mn), reflecting higher claims, increased contract liabilities, and elevated operating expenses. The Capital Adequacy Ratio (CAR) fell to ~120% in 1QCY25 (CY24: ~169%), just meeting the regulatory minimum and remaining well below the industry average of ~330%, signaling constrained capital buffers and the need for immediate capital injection. The assigned 'Negative Outlook' reflects expected decline in key performance indicators due to portfolio mix, ongoing regulatory concerns, and revamp of corporate governance and operational frameworks.
The rating is contingent upon SLC’s ability to improve its business and financial profile by regaining market share, reverse losses trend and fortify its capital position. Any further deterioration in these key indicators would result in further downgrade of rating. Meanwhile, strengthening risk management practices, operational controls and compliance with regulatory requirements will have a positive impact on the rating.

About the Entity
Sanasa Life Insurance Company PLC (“SLC”), registered as Seemasahitha Sanasa Rakshana Samagama, was incorporated in 2006 as a public limited liability company under the Companies Act No. 17 of 1982, and re-registered in 2008 under the Companies Act No. 07 of 2007.

About the Instrument
SLC raised LKR~200mn rated, senior, unsecured, redeemable debentures at a par value of LKR 100/-. The debentures has two types, namely Type A (75%) and Type B (25%). Type A Debenture coupons are paid semi-annually at the fixed rate of 9.05% p.a. (AER – 9.25%) and Type B Debenture coupons are paid semi-annually at a fixed rate of 9.28% p.a. (AER – 9.50%).