A challenging environment with undoubted potential

The decades long conflict between the Tamil Tiger movement and the Sri Lankan government has slowed down the pace of economic development and inhibited the growth of the insurance sector in the country. Despite the recent capture by government forces of territory once held by the Tamil Tigers , any prediction for the foreseeable future is necessarily uncertain. Since the abolition of insurance tariffs in key classes, including motor, between 2002 and 2007, the market has been characterised by fierce premium rate competition. However, there is the expectation, that rates will harden in the medium to long term as regulatory pressure on balance sheet solvency, increased share capital requirements and greater transparency oblige insurers to pay as much attention to profitability as revenue. Indeed, market practitioners reported in September 2008 that marine cargo business, a major class of non-life business, may be profitable as a result of much improved port security and because, for the first time for many years, the class is being rated on its merits rather than as a loss leader for attracting other more desirable business such as property and liability. There is also a strong belief in the market that once the Insurance Board of Sri Lanka (IBSL) finds a suitable way of regulating micro insurance, insurers will be paying greater attention to it as a means of increasing market penetration which in Sri Lanka remains far less than other countries in the region such as Malaysia and Thailand.