This article evaluates the performance of the Sri Lankan insurance sector with regard to life insurance and general insurance. The authors have ranked the Sri Lankan insurance companies on the basis of growth efficiency in order to make Strengths, Weaknesses/Limitations, Opportunities and Threats (SWOT) analysis of the Sri Lankan insurance industry. The study reveals that the insurance density and penetration is one of the lowest among the Asian countries. However, the growth rate of insurance density was above the world average, except for 2001 and 2009. Besides, life insurance penetration and density was lower than the general insurance penetration and density. The research tools for this study are correlation analysis and standard deviation. The hypothesis—the performance of life insurance business is more consistent than the performance of general insurance business—has been proved. It is also proved that there was a high (0.949) positive correlation between the Sri Lankan insurance density and world insurance density during 2000-2009.

In the South Asian region, Sri Lanka was the first country to commence financial sector reforms. The broad idea of implementing such reforms was to enhance economic growth, while improving financial market efficiencies to generate more benefits to the general public. An efficient and healthy financial system is a vital and necessary component for faster economic development. Economic history contains many examples of linkages between financial sector development and economic growth. Financial sector development includes both financial widening and financial deepening. Financial widening refers to the expansion of financial services and growth of financial institutions, while financial deepening refers to either an increase in the per capita amount of financial services and institutions or an increase in the ratio of financial assets to income (Ahmed and Ansari, 1998).

The Sri Lankan financial sector is one of the well-structured sectors with a lot of institutions and instruments. The financial sector under the Central Bank of Sri Lanka consists of licensed commercial banks, licensed specialized banks, registered finance companies, specialized leasing companies and other financial institutions, such as primary dealers, unit trusts, insurance companies and superannuation funds. However, the contribution of Sri Lankan insurance sector is the lowest among the different constituents of the financial sector.

Table 1 shows that the Sri Lankan insurance sector constituted over and above 3 % of the total assets of the financial sector during 2005-2008. While the banking sector enjoyed the lion’s share in the total assets of the financial sector with 69.1% in 2008, the non-banking companies, specialized financial institutions and contractual savings institutions accounted for 4.6%, 4.8% and 18.3% of the total assets of the financial sector. The Sri Lankan economy has lot of expansionary scope, especially in the agricultural sector and service sector, which should move ahead with the growth of the insurance sector.

Risk And Insurance Journal, Explanation Investment, Insurance Market, Insurance Firms, Insurance Products, Cooperative Investments, Social Welfare, Vertical Differentiation Model, Decision Making Process.