Home / Financial Services/ Fitch affirms National Insurance Trust Fund at ‘AA-’

Fitch affirms National Insurance Trust Fund at ‘AA-’

Comments / {{hitsCtrl.values.hits}} Views / Friday, 7 September 2018 00:00

Fitch Ratings has affirmed Sri Lanka-based National Insurance Trust Fund Board’s (NITF) National Insurer Financial Strength (IFS) Rating and National Long-Term Rating at ‘AA-(lka)’. The Outlook is stable. 

Key rating drivers 

The affirmation reflects the company’s strong domestic business profile, conservative investment mix as well as strong financial performance and capitalisation. This is partly offset by volatility in profitability and capitalisation over the previous 15 months due to back-to-back natural disasters and high claims. 

Fitch believes NITF has a strong domestic business profile, which is underpinned by its role as the country’s only reinsurer, its well-established exclusive product lines, its function as an arm of the State in implementing policies, its full government ownership and a mandate requiring all domestic non-life operators to cede 30% of their reinsurance to NITF. 

NITF’s strong capitalisation is reflected in its risked-based capital (RBC) ratio of 314% as at end-June (2017: 255%, 2016: 385%), which is well above the 120% regulatory minimum. However, capitalisation has been highly volatile since mid-2017 due to natural disaster-related losses and large dividend payments to the State. We believe the insurer’s capital position may come under pressure if it continues to pay high dividends during periods of increasing frequency of large natural catastrophes. NITF paid out 146% and 113% of profits as dividends to the State in 2017 and 2016, respectively. 

NITF has a strong financial performance and earnings. Its combined ratio improved to 74% in 1H18, after temporarily deteriorating to 100% in 2017 (2016: 79%), owing to high net claims from floods in May 2016 and May 2017 and a prolonged drought in several parts of the country. The higher net claims in 2017 were due to a delay in government approval to renew NITF’s reinsurance cover for the National Natural Disaster Insurance Scheme, which resulted in NITF having to bear the entire Rs. 1.7 billion in disaster management-related claims. Fitch believes any further delays of this nature, which could significantly dampen NITF’s profitability, may increase downside pressure on its ratings. Nevertheless, NITF’s 1H18 pre-tax operating return on assets recovered to 23.4%, from 5.6% in 2017 (2016: 17.9%), due to the moderation of claims and strong core profitability. 

Fitch sees some improvement in NITF’s reserving following the adoption of external actuarial certification from 2016. The insurer also started providing for incurred but not reported claim reserves at end-2016. Management reports that NITF’s liabilities are mainly short-tail in nature and estimated to be less than one year. 

NITF has a conservative investment policy; its entire portfolio is invested in government securities. The company is only permitted to invest in government securities and equity of hospital projects under the NITF Act. 

Rating sensitivities 

Key downgrade triggers: 

- If NITF’s RBC ratio remains below 250% or its combined ratio is above 100% for a sustained period, or if there is a weakening in its business profile, such as a large reduction in government-related business 

Key upgrade triggers: 

- An increase in NITF’s market share, together with strong profitability and capitalisation, as well as better risk management

Share This Article


1. All comments will be moderated by the Daily FT Web Editor.

2. Comments that are abusive, obscene, incendiary, defamatory or irrelevant will not be published.

3. We may remove hyperlinks within comments.

4. Kindly use a genuine email ID and provide your name.

5. Spamming the comments section under different user names may result in being blacklisted.


Today's Columnists

Constitutional paradox: There is no such thing called Election Commission

Wednesday, 14 November 2018

Our Constitution, which was certified by Parliament on 31 August 1978, has 19 amendments; the First Amendment to the Constitution was certified by the Speaker in the same year on 20 November. By the end of 1988, there had been 14 amendments made to t

‘So Sri Lanka’ – upgrade staff, processes, infrastructure at BIA arrivals to be world’s best!

Wednesday, 14 November 2018

24 October, time 12:47 p.m., place – my residence in Colombo My phone buzzes with a WhatsApp message from my old colleague Prasad Fernanado now with Saudi British Bank in Saudi. I am thrilled to see the message ‘Sri Lanka top country for travel i

Qatar crisis: From the Sri Lankans’ point of view

Wednesday, 14 November 2018

The aim of this article is to examine the Saudi blockade over Qatar and its impact in the past 17 months on the country. A special focus will be given to the Sri Lankan workers who have been living in Qatar for the past two decades. The reason why th

The reality of Sri Lanka – household end!

Wednesday, 14 November 2018

Whilst Sri Lanka is debating what is right and wrong on the governance of the country, the Sri Lankan household is falling part due to escalating costs, as per the latest data released by respected research agency Nielsen. For the seventh quarter in

Columnists More