An Echelon Media Company
Monday June 3rd, 2024

Sri Lanka’s NITF outlook cut to negative, AA-(lka) rating confirmed

ECONOMYNEXT – The outlook of Sri Lanka’s National Insurance Trust Fund, a fully state-owned insurer which also re-insures some domestic risks has been cut to negative from stable by Fitch, as dividend payments the higher claims hit its capital ratio.

NITF’s risk-based capital (RBC) ratio, had fallen t 180 percent in the third quarter of 2019 from 257 percent last year.

“The fall in the insurer’s regulatory capital position was caused by higher claims in its inward reinsurance business, which exceeded the net retention of LKR1 billion under NITF’s reinsurance arrangements, as well as large dividend payments to the state,” Fitch Ratings said.

“The higher claims have increased claim liability provisions, which in turn have increased the regulatory capital requirement.”

The full statement is reproduced below:

Fitch Revises Outlook on National Insurance Trust Fund to Negative; Affirms at ‘AA-(lka)’

17 DEC 2019 01:29 AM ET

Fitch Ratings – Colombo/Sydney – 17 December 2019:

Fitch Ratings Lanka has revised the Outlook on Sri Lanka-based National Insurance Trust Fund Board (NITF) to Negative from Stable and has affirmed the insurer’s National Insurer Financial Strength (IFS) Rating at ‘AA-(lka)’.

KEY RATING DRIVERS

The Outlook revision reflects the increased volatility in NITF’s capitalisation, measured by the regulatory risk-based capital (RBC) ratio, which fell to 180% in 9M19 (2018: 257%). The affirmation reflects NITF’s ‘Favourable’ business profile, financial performance that is better than that of the industry and conservative investment mix.

The fall in the insurer’s regulatory capital position was caused by higher claims in its inward reinsurance business, which exceeded the net retention of LKR1 billion under NITF’s reinsurance arrangements, as well as large dividend payments to the state. The higher claims have increased claim liability provisions, which in turn have increased the regulatory capital requirement.

We expect the provisions to reduce gradually as claims are settled, improving the RBC ratio, although the insurer’s capital position may come under further pressure if it continues to pay high dividends, especially during periods of large losses. NITF’s dividend pay-out averaged over 100% in the last three years.

NITF’s combined ratio rose to 94% in Q319, from 86% in 2018, following large claims in the inward reinsurance class. Despite this, its combined ratio was below industry average, supported by modest claims from the Strike, Riot, Civil Commotion and Terrorism programme and NITF’s low-cost operating model.

However, we think profitability could be pressured if the proposed LKR1 billion premium contribution increase from the government for the Natural Disaster Insurance Scheme does not materialise.

Fitch ranks NITF’s business profile as ‘Favourable’ compared with other domestic non-life insurers due to its substantive business franchise, supported by its full government ownership and role in implementing state policies. NITF is the only domestic reinsurer and a state mandate requires all domestic non-life operators to cede 30% of their reinsurance to NITF.

NITF’s unique product mix, with minimal claim history in some of its business lines, is offset by high exposure to the risk of losses from catastrophe events and its reinsurance business.

NITF’s investment policy is conservative. It is only permitted to invest in government securities and the equity of hospital projects under its legislation. The insurer mostly invests in short-term government securities to maintain sufficient liquidity.

RATING SENSITIVITIES

Downgrade Rating Sensitivities:

– Deterioration in the RBC ratio to below 250% for a sustained period.

– Deterioration in the combined ratio to above 100% for a sustained period.

– Significant weakening in NITF’s business profile, such as a large
reduction in government-related business.

Rating sensitivities that could result in an Outlook revision to Stable:

– An improvement in the RBC ratio to consistently above 250% while maintaining a ‘Favourable’ business profile and the combined ratio remaining below 100%.

Leave a Comment

Your email address will not be published. Required fields are marked *

Leave a Comment

Leave a Comment

Cancel reply

Your email address will not be published. Required fields are marked *

Water levels rising in Sri Lanka Kalu, Nilwala river basins: Irrigation Department

Sri Lanka Navy assisting in rescue operations (Pic courtesy SL Navy)

ECONOMYNEXT – Sri Lanka’s Irrigation Department has issued warnings that water levels in the Kalu and Nilwala river basins are rising and major flooding is possible due to the continuous rain. People living in close proximity are advised to take precautions.

“There is a high possibility of slowly increasing prevailing flood lowline areas of Kiriella, Millaniya, Ingiriya, Horana, Dodangoda, Bulathsinhala, Palinda Nuwara and Madurawala D/S divisions of Ratnapura and Kalutara Districts, up to next 48 hours,” it said issuing a warning.

“In addition, flood situation prevailing at upstream lowline areas of Ratnapura district will further be prevailing with a slight decrease.

“The residents and vehicle drivers running through those area are requested to pay high attention in this regard.

“Disaster Management Authorities are requested to take adequate precautions in this regard.”

The island is in the midst of south western monsoon.

DMC reported that 11,864 people belonging to 3,727 families have been affected due to the weather in Rathnapura, Kegalle, Kilinochchi, Jaffna, Mullaitivu, Kalutara, Gampaha, Colombo, Galle, Matara, Hambantota, Puttalam, Kurunegala, Kandy, Nuwara Eliya, Anuradhapura, Polonnaruwa, Badulla, Moneragala, and Trincomalee districts.

Meanwhile, the Meteorology Department stated that showers are expected on most parts of the island today.(Colombo/June3/2024)

Continue Reading

UNP gen secy defends call for postponing Sri Lanka poll, claims opposition silent

The UNP party headquarters in Pitakotte/EconomyNext

ECONOMYNEXT — United National Party (UNP) General Secretary Palitha Range Bandara has defended his call for postponing Sri Lanka’s presidential election by two years, claiming that his proposal was not undemocratic nor unconstitutional.

Speaking to reporters at the UNP headquarters Monday June 03 morning, Bandara also claimed that neither opposition leader Sajith Premadasa nor National People’s Power (NPP) leader Anura Kumara Dissanayake have spoken against his proposal.

“I have made no statement that’s undemocratic. My statement was in line with provisions of the constitution,” the former UNP parliamentarian said.

He quoted Section 86 of Chapter XIII of the constitution which says: “The President may, subject to the provisions of Article 85, submit to the People by Referendum any matter which in the opinion of the President is of national importance.”

Sections 87.1, 87.2 also elaborates on the matter and describes the parliament’s role, said Bandara.

“I spoke of a referendum and parliament’s duty. Neither of this is antidemocratic or unconstitutional. As per the constitution, priority should be given to ensuring people’s right to life,” he said.

“Some parties may be against what I proposed. They may criticse me. But what I ask them is to come to one position as political parties and make a statement on whether they’re ready to continue the ongoing economic programme,” he added.

Bandara claimed that, though thee has been much criticism of his proposal for a postponement of the presidential election, President Wickremesinghe’s rivals Premadasa and Dissanayake have yet to remark on the matter.

“I suggested that [Premadasa] make this proposal in parliament and for [Dissanayake] to second it. But I don’t see that either Premadasa nor Dissanayake is opposed to it. To date, I have not seen nor heard either of them utter a word against this. I believe they have no objection to my proposal which was made for the betterment of the country,” he said. (Colombo/Jun03/2024)

Continue Reading

300 of 100,000 trees in Colombo considered high risk: state minister

ECONOMYNEXT – Trees in Sri Lanka’s capital Colombo are being monitored by the municipal council, Army and Civil Defense Force as the severe weather conditions continue, State Minister for Defense Premitha Bandara Tennakoon said.

“Within the Colombo Municipal Council city limits, there are 100,000 trees. Of these, around 300 are considered high risk,” Tennakoon told reporters at a media conference to raise awareness about the current disaster management situation.

Not all trees required to be cut down he said. “We can trim some of the branches and retain them.”

The problem was that buildings in the vicinity of the tree had cut branches on one side, causing it to become unbalanced, the minister said.

New laws would be brought in so provincial/municipal institutions could strengthen enforcement of building codes.

“We don’t have a single institution that can issue a warning about a tree. Not one to tell us what trees can or cannot be planted near a road.

“Trees should be suitable for the area. Some trees have roots that spread and damage roads, buildings. When the roots can’t go deep, they tend to topple over.

“Now Environment Day is coming up, and anyone can go plant a tree by the road. We have to take a decision about this. We have to enforce laws strongly in future.” (Colombo/June3/2024)

Continue Reading