RAM Ratings upgrades Asian Alliance Insurance’s rating to BBB

RAM Ratings Lanka has upgraded Asian Alliance Insurance PLC’s claims paying ability rating, from BB+ to BBB-; the rating outlook remains stable. The upgrade follows the successful completion of the Company’s rights issue in November 2010.

The corporate exercise has strengthened AAI’s capitalisation and is expected to enhance its financial performance through greater investment income. The rating is also upheld by AAI’s franchise in the life-insurance segment and improving financial performance in the general-insurance segment.

AAI is the sixth-largest life insurer in Sri Lanka in terms of gross written premiums, accounting for 4.25% of the industry’s premiums in FYE 31 December 2009. Life premiums constituted 67% of the Company’s total premiums written, reflecting its focus on this segment.

Moreover, AAI’s general insurance business turned around by end-September 2010, driven by strong investment income and improving claims experience. Previously, claims from the general segment had been impinging on overall financial performance due to few portfolios incurring high claims. With the discontinuation of such contracts, AAI’s financial performance is expected to continue improving and maintaining profitability.

In the meantime, the Company’s overall financial performance will also be supported by its enlarged investment portfolio on the back of its expanded capital base. AAI’s recent rights issue had raised Rs. 812.5 million, thus improving the Company’s capital buffer. Moving forward, we expect AAI’s insurance fund liability ratio to improve to around 1.5 times, from 3.67 times as at end-FY Dec 2009.