Fitch Ratings Lanka has revised the Outlook on Sri Lanka domiciled National Insurance Trust Fund Board (NITF) to Negative from Stable, citing the impacts of higher claims in its inward reinsurance business.
At the same time as the outlook revision, Fitch has also affirmed the insurer’s National Insurer Financial Strength Rating at ‘AA-(lka)’.
Fitch states that the negative outlook is a reflection of the increased volatility of the firm’s capitalisation, which declined to 180% in the first nine-months of 2019, versus 257% a year earlier.
The ratings agency attributes this decline to higher claims experienced in its inward reinsurance business, which exceeded the net retention of LKR1 billion under the firm’s reinsurance arrangements, as well as large dividend payments to the state. Ultimately, the elevated level of claims have increased claim liability provisions, which Fitch says have in turn increased the regulatory capital requirement.
In light of the large claims experienced in its inwards reinsurance business, the insurer’s combined ratio weakened to 94% in the third-quarter of 2019, although this is still below the industry average.
“However, we think profitability could be pressured if the proposed LKR1 billion premium contribution increase from the government for the Natural Disaster Insurance Scheme does not materialise,” says Fitch.
