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Nov 22, 2016

National Insurance Trust Fund gains a stable outlook

Although the Sri Lanka-based National Insurance Trust Fund’s (NITF) outlook is stable, capitalisation of the insurer could come under pressure if there is a significant increase in the already high dividend payouts to the government in the future, International rating agency Fitch reported.


NITF's reserving lacks sophistication, in Fitch's view. NITF is in the process of getting its reserves externally certified and NITF expects reserving to improve with the inclusion of incurred but not reported (IBNR) reserves.

According to management, NITF’s liabilities are mainly short-tail in nature, and estimated to be less than one year. NITF is only permitted to invest funds in government securities and equity of hospital projects under the NITF Act.

NITF’s entire investment portfolio is currently invested in government securities.

Fitch Ratings has assigned Sri Lanka-based National Insurance NITF's ratings reflect strong ties with the government of Sri Lanka (B+/Negative), a strong business profile as the only re-insurer in the country, high capitalisation and conservative investment policy, which are counterbalanced by its high dividend payouts that are likely to continue.

NITF's ratings reflect strong ties with the government as it is fully owned by the state and effectively functions as an arm of the state in the implementation of some policies, such as serving segments that are not covered by commercial insurers, and its role as the only reinsurer in the country.

Sri Lankan insurance regulation requires all non-life operators to cede 30% of their reinsurance to NITF. Inward reinsurance premiums accounted for 22% of NITF's gross written premiums (GWP) in 2015. Fitch expects reinsurance to be a key growth area for NITF, in line with industry growth in a country where penetration of non-life insurance is low.

In 2015, NITF's new management obtained retrocession to cover its reinsurance portfolio and as a result, claims stemming from the May 2016 floods in Sri Lanka were manageable.

According to management, NITF's liabilities are mainly short-tail in nature, and estimated to be less than one year. NITF is only permitted to invest funds in government securities and equity of hospital projects under the NITF Act. NITF’s entire investment portfolio is currently invested in government securities.

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