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Sri Lanka flood insurance claims top Rs15bn, re-insurance costs to rise

Jun 23, 2016 10:51 AM GMT+0530 | 1 Comment(s)

ECONOMYNEXT - Sri Lanka's insurance claims from a recent flood could be around 15.5 billion rupees, which was manageable but long term weather related risks are rising pushing up re-insurance premiums. Fitch, a rating agency said.

"Insurance claims arising from recent flooding in Sri Lanka are likely to be manageable for most local insurers due to low retention levels, but changing weather patterns raise long-term risks," Fitch Ratings said.

"The agency expects the sector's underwriting profitability to weaken in 2016, although this is unlikely to threaten most insurers' credit profiles."

Fitch expects record-high claims to worsen the combined ratio of non-life insurers in 2016, with higher reinsurance premiums raising future expense ratios. 

Sri Lanka's general insurance have low retention ratios on non-motor insurance with two thirds of fire cover, which also includes flood being re-insured.

Local regulations require insurers to cede 30 percent of their reinsurance to the National Insurance Trust Fund, with the balance reinsured with the global reinsurers.

NITF has estimated claims to be around 15.5 billion rupees, from a recent floods.

Natural catastrophe losses, such as floods, are covered under reinsurance treaties and excess-of-loss reinsurance covers. (Colombo/June23/2016)

The full statement is reproduced below:

Insurers Cope with Sri Lanka Floods, But Risks Increasing
Fitch Ratings-Colombo/Hong Kong-22 June 2016:

Insurance claims arising from recent flooding in Sri Lanka are likely to be manageable for most local insurers due to low retention levels, but changing weather patterns raise long-term risks, says Fitch Ratings. The agency expects the sector's underwriting profitability to weaken in 2016, although this is unlikely to threaten most insurers' credit profiles.

A severe tropical storm in mid-May caused flooding and landslides in several parts of the country, with areas along the Kelani River in the western province, north-east of the capital, Colombo, among the worst affected.

National Insurance Trust Fund (NITF), the state-owned local reinsurer, estimates claims from the disaster of around LKR15.5bn (USD107m).

Fitch expects record-high claims to worsen the combined ratio of non-life insurers in 2016, with higher reinsurance premiums raising future expense ratios. In addition, lower profitability, stemming from higher claims, could affect capitalisation of some lower-capitalised insurers. Fitch says the credit profiles of rated entities, Sri Lanka Insurance Corporation Limited (AA(lka)/Stable), HNB General Insurance Limited (A(lka)/Stable) and Continental Insurance Lanka Limited (A-(lka)/Stable), are likely to remain intact despite these challenges.

Sri Lankan non-life insurers have low retention in the non-motor segment, with more than two thirds of the fire class, which typically covers flood-related policies, being reinsured. Fire class accounted for just 5% of total non-life net written premium in 2015. Local regulations require insurers to cede 30% of their reinsurance to NITF, with the balance reinsured with the global reinsurance market. Natural catastrophe losses, such as floods, are covered under reinsurance treaties and excess-of-loss reinsurance covers.

Fitch says the foods are likely to raise awareness and increase demand for non-life insurance. Sri Lanka's uninsured population is high, with non-life penetration at around 0.6% of GDP. The non-life insurance market is dominated by motor insurance (65% of gross written premiums in 2015). Motor is covered under excess-of-loss reinsurance covers in the event of natural catastrophe.

Changing weather patterns, leading to increased frequency and severity of errant rainfall, raise long-term risks and highlight the need for insurance and proper pricing of such risk, as well as robust flood defence mechanisms, Fitch says. In early April 2016, the government obtained its first natural disaster cover from NITF, insuring itself against LKR10bn, with the first claim coming just six weeks later from the May floods.

The Government of Sri Lanka Disaster Management Centre says the May floods, reportedly the worst in 25 years, affected over 300,000 people, leaving 203 dead or missing and over 5,000 houses damaged. Production and storage facilities of several large companies were damaged and business has been interrupted. According to NITF, a handful of large commercial claims are expected to account for over half of total claims.
 


 

1 Comments

  1. sacre blieu June 24, 07:53 AM

    Will the insured also be benefited by the governments' program of compensation and re-building. Will the government also ensure that there will be no duplicity or falsity in the receiving of post disaster aid and claims.

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