Legislation

The insurance industry is regulated and supervised in terms of the provisions of the Regulation of Insurance Industry Act No.43 of 2000 (hereinafter referred to as the Act). The Insurance Board of Sri
Lanka (hereinafter referred to as the Board) was established under this Act.

Licensing and Market Structure

Insurance Companies
A company interested in engaging in insurance business in Sri Lanka should incorporate a public company under the Companies Act and register as an insurer under the Act.

16 insurance companies were in operation during the year, out of which 13 companies engaged in composite insurance, carrying on both long term insurance business and general insurance business while 1 company engaged in long term insurance business and 2 companies engaged in general insurance business.

Janashakthi Insurance Company Ltd. acquired National Insurance Corporation Ltd. from the government in the year 2002. During the year Janashakthi Insurance Company Ltd. informed the Board that the company is interested in amalgamating National Insurance Corporation Ltd. with Janashakthi Insurance Company Ltd. with effect from 31st December 2006. All transactions relating to any transfer and amalgamation of insurance business is required to be approved by a District Court, and when applying for approval, a copy of the Board’s observation on such transfer and amalgamation should also be submitted to Court for its perusal. The Board in its observations on the amalgamation, required Janashakthi Insurance Company Ltd. to maintain the Long Term Insurance Fund and Technical Reserves of General Insurance Business of National Insurance Corporation Ltd. separately until all life policies in issue on the date of amalgamation matured and the liabilities on all general insurance policies in issue and outstanding reinsurance claims were settled.

Insurance Brokers
A company interested in engaging in insurance broking business in Sri Lanka should incorporate a public company or a private limited company under the Companies Act and register as an insurance broker under the Act.

Insurance Agents
Insurance agents are individuals appointed and registered by insurers and insurance brokers and they play a key role in marketing life insurance products. In Sri Lanka there are around 25,000 insurance agents and they procure around 95% of the life insurance business. The Board in terms of section 78(4) of the Act has issued rules specifying the minimum educational qualifications and other entry requirements to appoint an individual as an insurance agent. The Sri Lanka Insurance Institute (SLII) conducts pre-recruitment tests for insurance agents in respect of long term insurance in all three languages.

Company Status and Changes in Equity

Insurance Companies

Hon. Minister of Finance in terms of the powers vested in him under the Act has issued Regulations increasing the minimum paid up share capital of insurance companies to Rs.100 million in respect of each class of insurance business with effect from 12th October 2005. Further the Board has decided to increase the paid up share capital of insurance companies in respect of each class of insurance business to Rs.250 million by end of December 2008 and Rs.500 million by end of December 2010. The Board has also decided to request all insurance companies to obtain a rating of the Insurer’s Financial Strength (IFS) which indicates the insurer’s claim paying abilities, from a rating agency acceptable to the Board by end of December 2007 and publish the rating within one month from the date of obtaining the rating. Six insurance companies i.e. Ceylinco Insurance PLC, Eagle Insurance PLC, Union Assurance PLC, Asian Alliance Insurance Company Ltd., HNB Assurance Ltd. and AmanaTakaful PLC are listed on the Colombo Stock Exchange. Foreign equity participation has been permitted up to 100% in insurance companies in terms of the Gazette Notification No. 1232/14 dated 19th April 2002 published by the Controller of Exchange. Out of the 16 insurance companies, 5 have foreign collaborations. Allianz Insurance Company Lanka Ltd. is a wholly owned subsidiary of Allianz Group of Germany. Majority shareholding of Eagle Insurance PLC, Hayleys AIG and Life Insurance Corporation (Lanka) Ltd. are held by Aviva Company, American International Group and Life Insurance Corporation of India respectively. Takaful Malaysia has 15% equity participation in Amana Takaful PLC.

Insurance Brokers

In terms of Rules made by the Board under section 80(1)(a) of the Act the paid up share capital requirement to register companies as insurance brokers was increased to Rs.1 million with effect from 29th September 2005. The Board decided a further increase of the paid up share capital of insurance brokers on a staggered basis. Intending capital structure to be introduced to the insurance brokers will be announced shortly.

Levy of CESS from Insurance Companies

In terms of section 7(2) of the Act, an order was made by the Hon. Minister of Finance for the levy of cess at the rate of 0.2% of the total net premium income of long term insurance business and 0.4% of the total net premium income of general insurance business. This was published in the Gazette Notification No.1244/5 on 9th July 2002. The cess collection from insurers commenced from January 2003. Total amount of cess collected for the year 2006 was Rs.93 million.

Policy Holders Protection Fund

The cess collected from insurance companies is deposited into the Policy Holders Protection Fund which was established in terms of section 103(1) of the Act. The amount lying to the credit of the Policy Holders Protection Fund is invested in Treasury Bills. The accumulated amount in the Fund as at 31st December 2006 was Rs.229 million.

Insurance Tariff
Insurance Association of Sri Lanka (IASL) requested the Board to remove the tariff on Workmen’s Compensation Insurance (WCI) giving the following reasons in support of the request:

(i) Insurers will be able to offer higher benefit packages over and above statutory benefits by charging higher premium.

(ii) Help the insurers to decide individually on additional covers such as 24 hour cover which would benefit the market.

(iii) Presently the tariff is not observed in the market by the insurers.

(iv) The tariff on other two major classes, fire insurance and motor insurance have already been removed.

The members of the Board after carefully examining the request made by the IASL, decided to detariff Workmen’s Compensation Insurance effective from 1st January 2007 which was the only tariff based class of the general insurance business.

Overseas Insurance - Travel, Health and Liability Insurance

In terms of section 101 of the Act, the Board has approved any person to place directly or indirectly health and travel insurance and also directors and employer’s liability insurance with an insurer licensed or registered overseas even if such insurer is not registered in Sri Lanka under the Act.

Exemptions

Provisions of the Regulation of Insurance Industry Act do not apply in respect of the Agriculture and Agrarian Insurance Board established under the Agriculture and Agrarian Insurance Act No. 20 of 1999, the Sri Lanka Export Credit Insurance Corporation established under the Sri Lanka Export Credit Insurance Corporation Act No.15 of 1978 and the Social Security Board established under the Social Security Board Act No.17 of 1996.

The provisions of the Act do not apply to the enterprises which enter into agreements with the Board of Investments (BOI) under section 17 of the Greater Colombo Economic Commission Law, No. 4 of 1986 and are exempted by the Minister of Finance under the powers vested in him by the Insurance Corporation (Amendment) Act No. 43 of 1986 and published in the Government Gazette.