Lankan insurance companies doubt re-insurance viability
The financial strength of National Insurance Trust Fund (NITF) to honour its obligations as a national re-insurer in the event of any major catastrophe has come under the scrutiny of the industry.
NITF’s fund fell to Rs. 6.8 billion in 2012 from Rs. 8.5 billion in 2011. It has dropped its investments in government securities by 58 per cent or Rs. 4.4 billion to Rs. 3.2 billion in 2012 in comparison to Rs. 7,683 million in 2011, Finance Ministry officials said.
The fund recorded a pre-tax profit of Rs. 2.15 billion in fiscal 2012 (fiscal 2011: Rs. 2.33 billion), a moderate return owing to the relatively lower returns from its investment portfolio amid receding interest rate scenario in 2011.
Insurance industry sources pointed out that in a small market like Sri Lanka, the volume of business will not support a viable national reinsurer. Sri Lanka’s 21 insurance companies are now required to pay 30 per cent of the premium, up 10 per cent from 20 per cent earlier, of its re-insurance arrangements to NITF which itself is not reinsured, CEO of Asian
Alliance Insurance and immediate Past President of the Insurance Association of Sri Lanka Ramal Jasinghe told the Business Times.
He said that insurance companies are concerned about the speedy settling of claims from people for damages from any natural disaster owing to the viability of the fund.
NITF will have to provide re-insurance facility of 30 per cent without delay to settle claims and they will have to seek the balance 70 per cent from their foreign re-insurers, he added. The premium for 100 percent foreign re-insurance facility is not very high and it has the international guarantee, Mr. Jasinghe said adding that the threat of natural disasters cannot be ruled out due to changes in current weather patterns.
The association has made representations to the Finance Ministry expressing their concern on the financial viability of the NITF, he disclosed.
Jagath Alwis, Director (Technical)/Chief Technical Officer of Ceylinco Insurance PLC who is also a past association president, stressed the importance of natural catastrophic risk modelling and the appropriate reinsurance protection to be taken by insurers operating in any market to face challenges of the increasing natural disasters, with minimum impact on shareholders’ funds.
He said that the NITF would be called upon to settle all claims in the event of a major natural disaster and the industry has appealed to authorities to get a ‘retrocession’ (NITF to be reinsured by a foreign party) to minimize the financial burden on the Government.
D. Vidanagamachchi, Chairman, NITF pointed out that the probability of a tsunami, earthquake occurring or major natural disaster in Sri Lanka is minimal and it has to seek funds from the Treasury to meet any such eventuality He noted that NITF is reducing foreign currency outflows via reinsurance ceding. The fund’s strategic direction is broadly aligned with the Government’s macroeconomic objectives. It contributes around Rs. 2 billion annually to the state’s Consolidated Fund, making it the fourth-largest contributor, he said.
He revealed that he has brought to the notice of the ministry the concerns expressed by the industry.
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