Insurance industry doubts ability of NITF to settle riot claims
Sri Lanka’s insurance industry has expressed doubts over the ability of the National Insurance Trust Fund (NITF) to meet claims which is likely to arise following the attacks on Muslim shops and property in southern Aluthgama last week, due to the relatively lower returns from its investment portfolio amid receding interest rate scenario.
The NITF, the sole provider of health insurance coverage to 1.2 million Government employees, maintains a conservative stance with regards to investments, with around 75 per cent of investments in the form of Government securities, insurance industry sources said adding that falling interest rates had depressed the Fund’s investment income.
A senior member of the Insurance Association of Sri Lanka pointed out that in a small market like Sri Lanka, the volume of business will not support a viable national reinsurer. The country’s 21 insurance companies are now required to pay 30 per cent of the premium, up from 20 per cent earlier, of its re-insurance arrangements to NITF which itself is not reinsured, he said.
He told the Business Times that insurance companies are concerned about the speedy settling of claims from people for damages from any natural disaster strike, riot and civil commotion and terrorism owing to the viability of the Fund.
He said this problem won’t arise if local companies were allowed a 100 per cent foreign re-insurance facility which comes with an international guarantee.
The association has made representations to the Finance Ministry expressing their concern on the financial viability of the NITF, he revealed.
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.
However D. Vidanagamachchi, Chairman, NITF pointed out that the probability of a tsunami, earthquake occurring or major natural disaster in Sri Lanka is minimal and in any event, the Fund has to seek funds from the Treasury to meet any such eventuality.
He revealed that although interest income has recorded decline, NITF’s liquidity position is deemed satisfactory, as underlined by its ratio on liquid assets.