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Black Monday violence: State insurer’s total loss over Rs. 1 bln
Total losses from the violence unleashed by Sri Lanka Podujana Peramuna mobs on those who were protesting peacefully opposite Temple Trees and at the Galle Face Green against the rule of President Gotabaya Rajapaksa and the resulting backlash, will likely exceed Rs 1 billion, and the state-owned National Insurance Trust Fund Board’s Strike, Riot, Civil Commotion and Terrorism Fund will bear the brunt of it, a report suggests.
Fitch Ratings says in a commentary that the riot fund’s net loss, however, will be limited to Rs 1 billion due to the protection provided by its excess of loss reinsurance cover.
There will only be little impact on primary insurers, Fitch suggests. In excess of loss reinsurance, a reinsurer is compensated for losses exceeding a specific limit.
“We expect the National Insurance Trust Fund (NITF) to have sufficient liquid assets,’’ to settle claims Fitch said on Thursday, noting that it is too early to estimate losses, “although NITF has started to receive claims from primary insurers’’.
Fitch rates the fund A + (lka) with a ‘Rating Watch Negative’. This shows potential for downgrading, or staying at the same level.
The NITF, the state reinsurer set up under the National Insurance Trust Fund Act, No. 28 of 2006, is allowed to invest in government securities and provides strike, riot, civil commotion and terrorism insurance, and also Agrahara medical insurance, health insurance and other general cover.
It also offers health insurance for members of parliament. In 2021, the premium income from lawmakers was Rs 20 million. That year, Rs 17.36 million claims were paid.
Insurers that reinsure have to reinsure 30% of the total liability from every general re-insurance policy, with the NITF.
Fitch observes that primary insurers have net retention of Rs 2.5 million per policy for motor claims under the riot fund cover, subject to an aggregate amount of Rs 10 million, with additional losses passed on to the NITF. Non-motor claims are fully passed on to NITF, subject to any excess borne by the policyholder.
Once total losses exceed Rs 1 billion, the NITF is able to recover additional losses under its excess of loss reinsurance cover up to a maximum of Rs 10 billion, Fitch says. The NITF’s reinsurance cover for the riot fund, which is placed with international reinsurers, is effective from February 2022 to July 2023, Fitch notes.
The NITF Board reported a post-tax income of Rs 4.94 billion for 2021, from Rs 7.52 billion the year before, according to an unaudited ‘financial statement’ filed under ‘annual report’ signed by Chairman M.M.M. Mowjood and posted online. It is not an annual report.
Gross premiums in 2021 were Rs 10.63 billion.
According to the regulator, in 2019, the NITF had a 12.40% market share in general insurance, and became the fourth largest in terms of gross written premiums of Rs 13.35 billion.
In 2021, the NITF’s office rent had shot up to Rs 4.65 million from Rs 2.73 million, while the fuel bill had risen to Rs 2.10 million from Rs 1.73 million.
An item recorded as ‘staff distress loans’, shows Rs 47.3 million.
This reinsurer is noted for valuing the life of a Sri Lankan who perishes in a natural disaster such as a flood or landslide, at a mere Rs 100,000, following a budget proposal.
In 2021, the NITF paid out Rs 2.21 billion to 29,969 claimants for private hospital care, a report online shows. For state hospital care, it paid out Rs 879.15 million.
Rs 248.13 million was paid out to 56,456 claimants for their spectacles.
The NITF paid out Rs 1 billion for heart surgeries of more than 1,600 claimants. For childbirth, the NITF paid out Rs 712.50 million to 22,494 claimants.
In total, the NITF paid out Rs 6.38 billion in 2021 to 198,425 Agrahara claimants compared with Rs 4.17 billion in 2020, a rise of 53%.
About 4 million benefited from the Agrahara medical insurance, according to a fund report. Even semi-government workers and family members are eligible.
Agrahara covers married and unmarried state workers. For married workers the scheme covers their spouse and children (only if unmarried, unemployed and below 21). And for unmarried state workers, the scheme also covers parents aged below 70.
Contributions to Agrahara in 2021 were Rs 6.28 billion, including Rs 824 million of public money ploughed from the Treasury. In a report on 2019 results, the National Audit Office notes that NITF’s net income fell by Rs 69.15 million to Rs 3.11 billion.
Fitch notes that NITF’s net assets exceeded Rs 14 billion at end-2020, while the riot fund posted net income of Rs 5 billion.
Fitch foresees losses in the near-term for the riot fund. Insurance provided by the riot fund saw an increased uptake following the Easter Sunday terrorist attacks in 2019, Fitch says. Annual premiums increased to Rs 6.1 billion in 2020, from Rs 4.6 billion in 2018.
The riot fund is NITF’s most profitable business. Fitch says it does not expect claims from the violence to affect NITF’s capital position.
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