Co-operative Insurance Company PLC Financial Summary and Investment Analysis

Executive Overview

Co-operative Insurance Company PLC is the holding company for a group engaged primarily in general insurance through the parent and life insurance through Cooplife Insurance Limited, with Coopinsu Training Academy (Pvt) Ltd supporting insurance education. General insurance lines include motor, fire and engineering, marine, medical and miscellaneous business.

Periods covered: Q4 2023 to Q2 2026, with CY2021-CY2025 historical context. CY2025 is audited; quarterly statements are unaudited.

The financial direction has improved materially. Group gross written premium (GWP) rose 10.5% in CY2025 to LKR 6.220 billion, while profit before tax (PBT) rose 60.9% to LKR 512.6 million. However, profit after tax (PAT) increased only 2.0% to LKR 279.1 million because tax expense rose sharply. All four quarters of 2025 were profitable, unlike the volatile loss/profit pattern during 2023-2024, and profitability remained positive through Q2 2026.

H1 2026 continued the recovery: GWP +4%, net earned premium +8%, total net revenue +2%, PBT +53% and PAT +48% YoY. The main caution is that gross claims rose 33%, while claims ceded to reinsurers rose 302%, making reinsurance important to the earnings improvement.

Financial Performance

Revenue and Profitability Trends

For an insurer, gross profit and gross-profit margin are not meaningful measures. GWP, net earned premium (NEP), PBT and underwriting/claims metrics are more relevant.

*PBT/total net revenue.

Q2 2026 versus Q2 2025: GWP +11%, NEP +6%, total net revenue +1%, PBT +156% and PAT +136%. QoQ versus Q1 2026, GWP fell 10.5%, PBT 7.9% and PAT 14.8%, but margins remained substantially above Q2 2025.

For CY2025, total net revenue declined 4.3% to LKR 6.462 billion despite GWP growth, because NEP fell 4.0% and investment income fell 3.9%. Profitability improved because net benefits and claims fell 9.2%, acquisition costs declined materially and operating expenses remained broadly controlled. Gross claims actually increased 23%, but claims ceded to reinsurers increased from approximately LKR 404 million to LKR 1.043 billion.

The General Insurance business generated CY2025 GWP of LKR 5.007 billion (+10%), underwriting profit of LKR 1.158 billion versus LKR 898 million, PBT of LKR 324.0 million (+112%) and PAT of LKR 187.9 million (+66%). Management reported a claims ratio of 73% versus 80% and combined ratio of 115% versus 122%. The combined ratio remaining above 100% shows core underwriting still requires further improvement. Life Insurance GWP increased to LKR 1.213 billion, while its underwriting loss narrowed to LKR 272 million from LKR 300 million.

Balance Sheet Analysis

At 2026-06-30, assets were 9.8% above 2025-06-30 and equity 8.8% higher. Premium receivables fell 10.5% YoY to LKR 788.4 million, while cash increased to LKR 608.1 million. Conversely, reinsurance receivables rose 46.5% to LKR 1.849 billion, reinforcing the importance of timely reinsurance recovery.

No interest-bearing borrowings were reported. Lease liabilities plus bank overdrafts were approximately LKR 569.6 million, only ~0.09x equity. A conventional current ratio is not meaningful because the insurer presents assets and liabilities broadly by liquidity rather than current/non-current classification.

Capital remains above regulatory requirements, although the General Insurance risk-based Capital Adequacy Ratio fell from 312% in 2024 to 207% in 2025, still above the 120% regulatory minimum and management's 160% supervision threshold. Cooplife's CAR strengthened from 415% to 500%. The latest interim report states an Insurer Financial Strength rating of BB(lka), Stable Outlook.

Cash Flow Analysis

*Amounts in LKR Mn.*

CY2025 operating cash flow remained negative despite accounting profit. H1 2026 improved to positive LKR 45.4 million. Conventional free cash flow was approximately negative LKR 335.5 million in CY2025 and positive ~LKR 42.9 million in H1 2026, although FCF is less informative for insurers because investment transactions are integral to their business model.

Key Financial Ratios and Growth Indicators

• CY2025 Group ROA 1.44%, ROE 4%, ROCE 9% and investment yield 12%, versus 2%, 5%, 6% and 14% respectively in 2024.
• 2021-2025 CAGR: GWP ~3.8%, assets ~10.5% and equity ~5.1%. PAT declined at approximately 23.4% CAGR because the period includes the severe 2023 earnings downturn.
• CY2025 effective tax expense was ~45.6% of PBT versus ~14.1% in 2024, explaining why 60.9% PBT growth translated into only 2.0% PAT growth.
• Investment income remained substantial at LKR 1.694 billion, making earnings sensitive to interest rates and portfolio yields.
• The audited CY2025 statements received an unmodified audit opinion. Key audit matters included approximately LKR 5.24 billion of life-insurance contract liabilities and LKR 4.39 billion of non-life liabilities because of material actuarial assumptions and estimation uncertainty.

Economic and Market Context

The reports describe Sri Lanka's economy as recovering, with 5.0% real GDP growth in 2025, year-end inflation of 2.1%, improving business activity, vehicle sales, construction and trade. Insurance-industry GWP grew about 19% in 2025, while general insurance grew approximately 13%.

Co-operative Insurance Company PLC's General Insurance GWP grew about 10%, therefore trailing overall general-insurance industry growth despite management reporting that market share remained around 4%.

Weather-related events materially increased claims. Management specifically highlighted Cyclone Ditwah and stated that the reinsurance programme enabled the Company to absorb catastrophe exposure while continuing claim settlement.

Future Potential and Outlook

Management's strategic priorities are to expand non-motor business, reduce motor concentration, strengthen data-driven underwriting and pricing, broaden digital and partner distribution, automate claims/customer processes and target underserved segments. CRIB integration, digital motor certificates and initiatives aimed at increasing insurance penetration may support future growth.

SLFRS 17 is a major 2026 transition item. System implementation was substantially completed in Q4 2025 and parallel runs continued during 2026. The planned go-live was revised from 2026-01-01 to 2026-08-01. The quantitative transition impact, including the effect on retained earnings, was still being finalised, creating uncertainty over comparability of future reported earnings and equity.

Risks and Challenges

• Claims/catastrophe risk: H1 2026 gross claims increased 33% YoY.
• Reinsurance dependence: recoveries materially support profitability; reinsurance receivables rose 46.5%.
• Underwriting profitability: the General Insurance combined ratio remains 115%, above breakeven.
• Capital trend: General Insurance CAR remains strong but declined from 312% to 207%.
• Investment-rate risk: investment yield declined from 14% to 12%.
• Accounting transition: SLFRS 17/SLFRS 9 can materially change earnings, equity and presentation.
• Dividend/regulatory risk: IRCSL restricted undeclared/distributed 2024-2025 general-insurance dividends pending industry review.
• Tax volatility: CY2025 taxation absorbed a large portion of improved pre-tax earnings.

No significant events after the reporting date were disclosed in the latest interim financial statements.

Shareholder and Corporate Information

At 2026-06-30, public holding was 66.304% across 7,468 public shareholders; float-adjusted market capitalisation was LKR 4.163 billion. The top 20 shareholders held approximately 69.8%. The largest shareholder, Wennappuwa Multi Purpose Co-operative Society Ltd, held 13.13%, while the top five collectively held approximately 39.1%. Directors' direct holdings were comparatively small.

The share closed at LKR 3.50 on 2026-08-14, down 7.89% across the latest 90 trading sessions, with a LKR 3.30-4.40 range. Using CY2025 Group EPS of LKR 0.17 gives a derived trailing P/E of ~20.6x. Using 2026-06-30 NAV, LKR 3.50 represents approximately 0.88x Group NAV and 1.05x Company NAV.

The Company paid an interim dividend of LKR 0.10/share in 2024. A further LKR 0.05/share final dividend was proposed for 2024 but became subject to the subsequent IRCSL dividend restriction.

Investment Decision Indicators

Strengths

• Continuous quarterly profitability from Q1 2025 through Q2 2026.
• Strong H1 2026 PBT and PAT growth.
• Significant improvement in General Insurance claims and combined ratios.
• Low conventional financial leverage and strong regulatory capital.
• Growing investment/asset base and improved liquidity.
• Premium receivables declining despite premium growth.

Weaknesses

• Combined ratio remains above 100%.
• CY2025 operating cash flow remained negative.
• ROE remains relatively low at 4%.
• Earnings rely materially on investment income and reinsurance recoveries.
• General Insurance CAR has fallen materially from its previous level.

Opportunities: economic recovery, vehicle and commercial activity, non-motor diversification, digital distribution, underserved customer segments, pricing analytics and operational automation.

Threats: catastrophe/weather claims, reinsurance-counterparty exposure, investment-yield changes, regulatory dividend restrictions, faster-growing industry competitors and SLFRS 17 transition effects.

Overall assessment: The reports indicate a genuine operating recovery from the volatile 2023-2024 period, with CY2025 and H1 2026 showing substantially more consistent profitability. The central question is whether this improvement can persist with a combined ratio still above 100%, declining General Insurance capital adequacy and substantial reinsurance support. The investment case would become materially stronger if future periods demonstrate sustained PBT margins, a combined ratio approaching or falling below 100%, positive operating cash generation, stable CAR and transparent earnings quality after the SLFRS 17 transition.