Following the downgrade of the Company’s Insurance Financial Strength (IFS) rating, driven by further deterioration in fundamentals and heightened regulatory concerns, the rating of the Debt Instrument has also been downgraded, reflecting the weakened credit profile of the issuer. SLC continues to face pressure on Gross Premium Written (GPW) and underwriting profitability as the Insurance Regulatory Commission of Sri Lanka (IRCSL) discontinued one of the Company's products, Divijaya/Plan 25 product. This has resulted in material decline in capitalization and risk-absorption capacity of the Company, making it non-compliant with minimum regulatory requirement. The capital erosion has been significant, with the Capital Adequacy Ratio (CAR) falling from ~169% in CY24 to ~63% by 3QCY25, and ~56% in October-25, well below the regulatory minimum of 120%. Following findings relating to solvency breaches, reporting deficiencies, and non-compliance in product governance, IRCSL has temporarily suspended the Company’s license to operate its long-term insurance business from 5th December 2025 to 30th January 2026, constraining new business generation and heightening regulatory risk. Profitability remains weak, with underwriting losses, elevated claims-related outflows, and rising expense ratios reflected in 3QCY25 financial performance. The GPW of the Company was LKR ~5.2bn in 3QCY25 while the Company recorded net loss of LKR ~14.9mn due to higher claims and expense. The investment income stood at LKR ~317.6mn for the period. SLC has total assets of LKR ~5.9bn as of Sep 25, with investments amounting to LKR ~4.3bn.
The management has submitted a capital-restoration plan, yet to be approved by the IRCSL, comprising equity infusion of LKR ~500mn, operating expense reduction and deposal of certain assets, and issuance of subordinated debt (LKR ~500mn), the plan is yet to be approved by the regulator and timely execution of the plan remains to be seen. The Negative Outlook reflects uncertainty regarding the restoration of license and approval of the proposed plan by the regulator.
Going forward, the rating is contingent upon restoration of the license, successful and timely implementation of capital infusion plan, and complying to minimum regulatory requirements. Any further deterioration in key performance indicators or continued license suspension will have negative impact on the rating.