The Insurance Board of Sri Lanka (IBSL) is responsible for the development, supervision and regulation of the insurance industry.
The Regulation of Insurance Industry Act, No. 43 of 2000 (as amended) (Insurance Act) governs inter alia the licensing and regulation of insurance companies, brokers, agents and loss adjusters.
The IBSL is a member of the International Association of Insurance Supervisors (IAIS) and adopts some of the core principles for effective supervision and monitoring of the insurance industry.
02 | Subsidiary/branch
Only companies incorporated in Sri Lanka may be registered to carry on business as an insurer or insurance broker. All insurance companies must be listed on the Sri Lankan stock exchange, unless exempted, within three years of obtaining a licence to operate.
All composite insurers have four years from 2011 to segregate into separate companies for their life and general businesses.
There is a prohibition on cross holdings and common directorships between insurers and broking companies.
03 | FDI restrictions
None. Foreign equity participation in insurance companies is permitted up to 100 per cent.
04 | Control approvals
Any change in the shareholders of an insurance company must be notified to the IBSL immediately after the event. This is on account of the statutory requirement to submit, to the IBSL, a full authenticated statement of any change in the statement submitted to the IBSL on registration, of the insurance company, which statement sets out prescribed particulars relating to the shareholders of the company.
In practice, insurance companies notify the IBSL of any change of control prior to such event.
The Insurance Act imposes fit and proper criteria for all directors of insurers.
A director of one insurer cannot be a director for any other insurer unless it is a subsidiary or associate of the first insurer.
05 | Minimum capital
The minimum capital requirement is LKR500* million per class of insurance business.
LKR148.44 = US$1.00 as at January 1, 2017
06 | Risk based capital
The IBSL is in the process of introducing a Risk Sensitive Minimum Capital Model for insurance companies. It has requested all insurance companies to obtain a rating on Insurer’s Financial Strength (IFS) and the Claims Paying Ability (CPA). However, there have been no statutory amendments to the law in this regard to date.
Currently a solvency margin regime applies as follows
Life insurers must maintain a solvency margin not less than five per cent of the value of their liabilities.
Non-life insurers must maintain a solvency margin of not less than the highest of
LKR50 million or
20 per cent of net premium or
40 per cent of average net outstanding claims for the three years immediately preceding the current year.
07 | Group supervision
The IBSL does not supervise the parent of an insurance company or any subsidiaries of an insurance company, not engaged in the business of insurance.
08 | Policyholder protection
The Minister of Finance has levied a ‘Cess’ on the annual net premium income of insurers for the creation of the Policyholders Protection Fund. 0.2 per cent on the annual net premium of long term insurance business and 0.4 per cent on the annual net premium of general insurance business is credited to the Policyholders’ Protection Fund. As per the 2015 Annual Report of the IBSL this amount is invested in government securities and the accumulated amount in the Fund as at December 31, 2015 was LKR2,643 million.
09 | Portfolio transfers
An insurance company may apply to Court to approve a transaction relating to any transfer and amalgamation of insurance business. The insurer must first have approached the IBSL and have obtained its observations thereon.
The Court has the discretion to approve or decline the application if the IBSL does not support the proposal and/or policyholders object.
10 | Outsourcing
The IBSL may grant permission to an insurer to keep assets outside Sri Lanka upon IBSL being satisfied that the value of assets permitted to be kept outside of Sri Lanka (i) will not exceed 20 per cent of the total assets of the insurer at any given time, and (ii) (of any single person) will not exceed five per cent of the value of assets permitted to be kept outside Sri Lanka at any given time; and upon the insurer providing a written assurance that documents evidencing the insurer’s title to such assets are kept safe in Sri Lanka.
There are no statutory restrictions on using a service company for ‘back office’ operations such as human resources, photocopying and claims processing (excluding the activities of a loss adjuster).