Fitch Ratings has downgraded the Insurer Financial Strength (IFS) rating of Sri Lanka Insurance Corporation (SLIC) to 'B+' from 'BB-'. The Outlook is Negative.

The rating actions follow the downgrade of Sri Lanka's Long-Term Local-Currency Issuer Default Rating (IDR) to 'B+' from 'BB-' (see "Fitch Downgrades Sri-Lanka to 'B+'; Outlook Negative," dated 29 February 2016 on www.fitchratings.com). A Negative Outlook was also assigned to the ratings. SLIC's IFS is now constrained by Sri Lanka's Long-Term Local-Currency IDR.

The National Ratings of SLIC have not been reviewed at this time.

KEY RATING DRIVERS
In selected cases, Fitch would allow insurers with very strong credit profiles, coupled with sizeable international business diversification, to exceed the sovereign rating. However, SLIC business is concentrated in Sri Lanka and as a result, its rating is constrained by the rating of the sovereign.

SLIC's ratings reflect its well-established franchise and market position in Sri Lanka, 99.9% state ownership, and its importance to the government as the largest state-owned insurer.

RATING SENSITIVITIES
A downgrade of Sri Lanka's ratings will lead to a downgrade of SLIC's Insurer Financial Strength rating.
Conversely, if the Outlook on the sovereign rating is revised to Stable and or the sovereign rating is upgraded in the future, and the constraints relieved, Fitch would take a similar rating action on SLIC.

The IFS rating may also be downgraded if there is:
- Significant weakening in SLIC's market position,
- Deterioration in the non-life combined ratio to above 100% on a sustained basis,
- Weakening in SLIC's importance to the government, increased pressure from the state for higher dividend payouts or a significant increase in non-core investments.