HNB Assurance expected to boost profitability

Non-life premiums increased 14% in H1 2024.

Sri Lanka-based life insurer HNB Assurance (HNBA) and its fully owned non-life subsidiary HNB General Insurance’s (HNBGI) underwriting profitability is expected to gradually improve from current levels, helped by stronger claims management and a diversified portfolio beyond motor and health, said Fitch Ratings.

In 2023 and the first half of 2024, HNBA and HNBGI demonstrated significant premium growth, outpacing the industry with life insurance premiums rising 24% in the first half of the year (H1 2024) (2023: 23%) versus a sector average of 17%. 

Non-life premiums increased 14% in H1 2024 (2023: 18%), well above the 6% industry growth in the same period. 

This was supported by HNBGI’s strategic focus on non-motor insurance, achieving a balanced 50-50 split between motor and non-motor segments in H1 2024, up from a 56-44 distribution in 2023.

The combined ratio in H1 2024 stood at 108%, an improvement over 111% in 2023, with a lower claims ratio of 68%. 

Despite these positive signs, underwriting profitability remains under pressure from heightened claims in health segments and new requirements to allocate 100% of motor insurance premiums for specific risks to a state-owned insurer. 

Consolidated net profit rose 14% year-over-year to LKR 474 million in H1 2024, with a three-year average return on equity of 19%.

Capitalisation levels for HNBA and HNBGI remain robust. Life and non-life risk-based capital ratios were 303% and 169% at the end of H1 2024, comfortably above the 120% regulatory minimum, despite a decline from 2023 levels due to market risk and premium concentration risks. 

Fitch expects that improving underwriting results will help stabilise non-life capital levels over the medium term. The group's investment and liquidity risks have reduced since Sri Lanka’s sovereign rating upgrade in September 2023.