Insurance

Sri Lanka insurers to be hit by directive to remit all riot, terrorism income to state re-insurer

Wednesday January 31, 2024 5:30 pm

ECONOMYNEXT – Profits of Sri Lanka insurers will be hit by a directive to remit 100 percent of premiums for strike, riot, civil commotion and terrorism cover to state-run National Insurance Trust Fund from an earlier 12 percent, Fitch Ratings said.

The segment has generally been highly profitable in recent years due to relatively low claim incidence, though there were significant claims in May 2022 as a result of anti-government protests, Fitch said.

“However, the effect on non-life insurers’ profitability and risk-based capital adequacy ratios could be reduced if they are able to raise premium pricing,” the rating agency said.

“The impact will also depend on the level of commissions motor insurers receive from NITF for providing SRCCT cover.”

The full statement is reproduced below:

Sri Lanka’s Motor Insurance Changes to Hit Non-Life Sector

Fitch Ratings-Hong Kong/Sydney/Colombo-31 January 2024: A new directive that Sri Lankan non-life insurers remit 100% of motor insurance strike, riot, civil commotion and terrorism (SRCCT) premiums to state-owned National Insurance Trust Fund Board (NITF, BBB(lka)/Stable) should benefit NITF while the underwriting profitability of non-life insurers is likely to worsen, says Fitch Ratings.

However, the effect on non-life insurers’ profitability and risk-based capital adequacy ratios could be reduced if they are able to raise premium pricing. The impact will also depend on the level of commissions motor insurers receive from NITF for providing SRCCT cover.

Prior to 2024, industry practice was to remit only 12% of SRCCT premiums to NITF under a reinsurance arrangement, although a 2008 government gazette required full remittance. The SRCCT segment has generally been highly profitable in recent years due to relatively low claim incidence, though there were significant claims in May 2022 as a result of anti-government protests.

NITF has yet to renew its reinsurance cover with international reinsurers for the SRCCT segment following its expiration in July 2023, and we believe unforeseen losses faced by NITF without such cover could result in heightened volatility for its capital position and earnings. This, along with the non-renewal of its retrocession cover for its inwards reinsurance business, was a factor in our decision to downgrade its rating, from ‘BBB+(lka)’, in October 2023. NITF’s combined ratio for SRCCT was 27% during the last five years, against its overall combined ratio of 78%, with ratios below 100% indicating an underwriting profit, which means a rise in premiums should boost profitability. Motor insurers previously had a maximum annual aggregate net retention of LKR10 million before passing on losses to NITF. This will no longer be the case under the new setup and NITF’s exposure will increase as a result.

We expect non-life insurers that have higher exposure to motor insurance to generally be more affected by the directive. The non-life industry’s combined ratio increased to 113% in 3Q23, from 109% in 2022, partly reflecting various factors that have eroded the underwriting profitability and market share of non-life insurers in the motor insurance segment in recent years. We estimate that the new requirements for SRCCT premiums may add 5pp-10pp to the non-life sector’s combined ratio, before accounting for any premium price adjustments and any commissions from NITF. This could weigh on the improvement in the combined ratio that we had expected for Fitch-rated non-life insurers in 2024.

Nonetheless, Fitch expects Sri Lanka’s economic conditions to improve in 2024, with GDP growth recovering, inflation easing and external liquidity metrics improving. These factors should support vehicle demand and motor insurers may be able to raise premiums significantly faster than inflation, on average, over 2024. This would moderate the impact on profitability from full remittance of SRCCT premiums to NITF, although higher prices may dampen demand growth for SRCCT policies. The capacity of many insurers to pass on price increases will still be constrained by competition, and we expect most Fitch-rated non-life insurers’ combined ratios to remain above 100% for 2024.

Investment and liquidity risks will likely remain the key downside risks for most of Fitch-rated Sri Lankan insurers in the near term, but poor profitability and capitalisation metrics could weigh on ratings over time. We revised the Outlooks on most of our rated insurers to Stable, from Rating Watch Negative (RWN), in October 2023 following the upgrade of Sri Lanka’s Long-Term Local-Currency Issuer Default Rating to ‘CCC-‘ from ‘Restricted Default’ (RD) and the subsequent removal of the RWN on Fitch-rated banks.
(Colombo/Jan31/2024)

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Weather and Climate

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

Monday June 3, 2024 2:17 pm

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)

Politics

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

The UNP party headquarters in Pitakotte/EconomyNext

Monday June 3, 2024 1:59 pm

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)

Accidents

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

Monday June 3, 2024 1:05 pm

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)