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Monday December 5th, 2022

Sri Lanka’s insurance losses from anti-Rajapaksa riots to top billion rupees: Fitch

ECONOMYNEXT – Sri Lanka’s insurance losses from riots which broke out after loyalists of ex-Prime Minister Mahinda Rajapaksa attacked peaceful protestors are likely to exceed a billion rupees, Fitch Ratings has said.

State-run National Insurance Trust Fund (NITF) provides Strike, Riot, Civil Commotion and Terrorism (SRCCT) cover on the island which is re-sold by all insurers.

The SRCCT Fund will bear the brunt of the losses with insurers experiencing little impact, Fitch said.

“We believe gross losses from the riots are likely to exceed LKR1 billion,” Fitch said.

“However, NITF’s net loss will be limited to this amount due to the protection provided by its excess of loss reinsurance cover. We expect NITF to have sufficient liquid assets to meet its claim obligations.”

“Rioters set vehicles on fire and destroyed property; including houses belonging to politicians, according to reports. It is too early to estimate losses from the event, although NITF has started to receive claims from primary insurers.

Primary insurers have net retention of 2.5 million rupees for motor claims under SRCCT cover with aggregate losses of over 10 million rupees passed onto the NITF.

Non-motor claims are fully passed on to NITF, subject to any excess borne by the policyholder.

Once total losses exceed LKR1 billion, NITF can recover additional losses under its excess of loss reinsurance cover up to a maximum of LKR10 billion.

NITF’s reinsurance cover for SRCCT, which is placed with international reinsurers, is effective from February 2022 to July 2023.

The full statement is reproduced below:

Losses from Sri Lanka’s Riots Manageable for Insurers

Fitch Ratings-Sydney-26 May 2022: Sri Lanka’s state-owned National Insurance Trust Fund Board’s (NITF, A+(lka)/Rating Watch Negative) Strike, Riot, Civil Commotion and Terrorism (SRCCT) fund will bear the brunt of losses stemming from recent riots in the country, with primary insurers experiencing little impact, says Fitch Ratings.

We believe gross losses from the riots are likely to exceed LKR1 billion. However, NITF’s net loss will be limited to this amount due to the protection provided by its excess loss reinsurance cover. We expect NITF to have sufficient liquid assets to meet its claim obligations.

Widespread riots broke out in Sri Lanka following an attack on anti-government protests in Colombo on 9 May.

Rioters set vehicles on fire and destroyed property; including houses belonging to politicians, according to reports. It is too early to estimate losses from the event, although NITF has started to receive claims from primary insurers.

The SRCCT fund, which is managed by NITF, provides cover against losses to property due to strikes, riots, civil commotion and terrorism. Primary insurers provide such cover as an add-on to their non-life products. Technical advisory and working committees, comprising industry participants, oversee the management of the SRCCT fund. The regulation requires NITF to administer the SRCCT fund separately from its other business lines.

Primary insurers have net retention of LKR2.5 million per policy for motor claims under the SRCCT cover, subject to an aggregate amount of LKR10.0 million, with additional losses passed on to NITF. Non-motor claims are fully passed on to NITF, subject to any excess borne by the policyholder. Once total losses exceed LKR1 billion, NITF can recover additional losses under its excess of loss reinsurance cover up to a maximum of LKR10 billion. NITF’s reinsurance cover for SRCCT, which is placed with international reinsurers, is effective from February 2022 to July 2023.

NITF’s net assets exceeded LKR14 billion in end-2020, while the SRCCT line recorded a net profit of LKR5 billion for the year. The fund’s assets were predominantly invested in local-currency denominated securities issued by the government of Sri Lanka. We affirmed Sri Lanka’s Long-Term Local-Currency Issuer Default Rating at ‘CCC’ on 19 May, as the government has continued to service local-currency debt and we assume this will continue, despite defaulting on its foreign-currency debt obligations.

We believe the SRCCT fund could see elevated losses in the near term as a result of the ongoing civil unrest amid Sri Lanka’s weak economic conditions. Cover provided by the SRCCT fund saw an increased uptake following the Easter Sunday terrorist attacks in 2019, with annual premiums rising to LKR6.1 billion in 2020, from LKR4.6 billion in 2018. SRCCT is NITF’s most profitable business line, with a loss ratio of less than 2% in the past five years, except in 2019, when the loss ratio reached 12%.

We do not expect claims from the recent riots to affect NITF’s capital position. However, weakness in its non-SRCCT business lines could affect the rating, as reflected in the Rating Watch Negative. We recently placed the National Ratings of all rated Sri Lankan insurers, including NITF, on Rating Watch Negative, due to elevated investment and liquidity risks, pressure on regulatory capital positions and a likely worsening in financial performance.

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  1. Zulfiqar Zavahir says:

    What happened to the reinsurance that Insurance companies are supposed to have to mitigate situations like this.

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  1. Zulfiqar Zavahir says:

    What happened to the reinsurance that Insurance companies are supposed to have to mitigate situations like this.

Paris Club proposes 10-year moratorium on Sri Lanka debt, 15 years of debt restructuring

ECONOMYNEXT — The Paris Club group of creditor nations has proposed a 10-year debt moratorium on Sri Lankan debt and 15 years of debt restructuring as a formula to resolve the island nation’s prevailing currency crisis, India’s The Hindustan Times reported.

While the Paris Club has yet to formally reach out to India and China, Colombo has yet to initiate a formal dialogue with the Xi Jinping regime, the newspaper reported on Saturday December 03, inferring that the chances of the International Monetary Fund (IMF) approving its 2.9 billion dollar extended fund facility for Sri Lanka in December now ranges from very low to nonexistent.

“This means that Sri Lanka will have to wait for the March IMF meeting of the IMF before any aid is extended by the Bretton Woods institution,” the newspaper reported.

“Fact is that for Sri Lanka to revive, creditors will have to take a huge hair cut with Paris Club clearly hinting that global south should also take the same cut as global north notwithstanding the inequitable distribution of wealth. In the meantime, as Colombo is still to get its act together and initiate a dialogue and debt reconciliation with China, it will need bridge funding to sustain the next three month before the IMF executive board meeting in March 2023. Clearly, things will get much worse for Sri Lanka before they get any better—both economically and politically,” the report said. (Colombo/Dec04/2022)

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Sri Lanka’s Ceylon tea prices up amid low volumes

ECONOMYNEXT – Sri Lanka tea prices picked up at the last auction in November amid low volumes, brokers said.

“Auction offerings continued to record a further decline and totalled 4.2 million Kilograms, of which Ex-Estate offerings comprised of 0.6 million Kilograms. There was good demand,” Forbes and Walker Tea brokers said.

“In the Ex-Estate catalogues, overall quality of teas showed no appreciable change. Here again, there was good demand in the backdrop of extremely low volumes.”

High Growns

BOP Best Westerns were firm to 50 rupees per kg dearer. Below best and plainer types were Rs.50/- per kg easier on last.

Nuwara Eliya’s were firm.

BOPF Best Westerns were firm to selectively dearer. Below best and plainer teas declined by 50 rupees per kg.

Uva/Uda Pussellawas’ were generally firm and price variances were often reflective of quality with the exception of Select Best Uva BOPF’s which were firm and up to 50 rupees per kilogram dearer.

CTC teas, in general, were mostly firm.

“Most regular buyers were active, with perhaps a slightly more forceful trend from the local trade,” brokers said.

Corresponding OP1’s met with improved demand. Well-made OP/OPA’s in general were fully firm, whilst the Below Best varieties and poorer sorts met with improved demand. PEK/PEK1’s, in general, were fully firm to selectively dearer.

In the Tippy catalogues, well-made FBOP/FF1’s sold around last levels, whilst the cleaner Below Best and cleaner teas at the bottom appreciated. Balance too were dearer to a lesser extent.

In the Premium catalogues, very Tippy teas continued to attract good demand. Best were firm to selectively dearer, whilst the Below Best and cleaner teas at the bottom appreciated

Low Growns

Low Growns comprised 1.8 million Kilograms. Market met with improved demand, in general.

In the Leafy & Semi Leafy catalogues, select Best BOP1/OP1’s were fully firm, whilst the Below Best/bolder BOP1’s were barely steady.

Low-grown teas, farmed mainly by smallholders and exported to the Middle East and Central Asia, are the most sought-after and expensive Ceylon Teas.

Low-grown CTC prices have gained this week to 982.80 per kilogram this week from 934.76 per kilogram last week.

Few Select best BOP1s maintained, whilst best and below best were irregularly lower. Poorer types maintained.

BOPF’s in general, firm market.

FBOPF/FBOPF1’s select best and best increased in value, whilst the below best and bottom held firm.

Selected best BOP1’s maintained, whilst best and below best were irregularly lower.Poorer types maintained.

OP1’s selects best together with best and below best were firm to dearer. Poorer sorts were fully firm.

Medium Growns

BOPF’s, select best gained by 50 rupees per kilogram. Others maintained.

BOP1’s select best dearer by 100 rupees per kg whilst all others moved up by 50 rupees per kg.

OP1: select best gained by 100 rupees per kg whilst all others dearer by 100 rupees per kg.

OP/OPA’s in general, dearer by 50 rupees per kg whilst the poorer sorts were firm.

PEK’s Select best gained by 50 rupees per kg whilst all others maintained. PEK1: In general, dearer by 50 rupees per kg. (Colombo/Dec 04/2022)

 

 

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Sri Lanka Ports Authority East Terminal contractor paid: Minister

ECONOMYNEXT – Sri Lanka’s Ports Authority had paid a deposit for a gantry crane and made the required payment for the contractor to complete building the East Container Terminal, Minister Nimal Siripala De Silva said.

The East Container Terminal, a part of which is already built is being completed as a fully SLPA owned terminal at a cost of 480 million dollars Ports and Shipping Minister de Silva said.

“ECT we are funding with money available in the ports authority,” he said.

“Up to now we have paid an advance for the gantry crane. And for the construction we have paid all the money agreed with the contractor. So that is going on well.”

Sri Lanka is undergoing the worst currency crisis in the history of the island’s soft-pegged (flexible exchange rate) central bank which has created difficulties in funding the project.

“Every penny we collect as dollars we are keeping them separately and utilizing that for the Eastern Terminal work,” Minister de Silva said.

“We are confident that the ECT will be completed within the envisaged time. It is a difficult task in view of the dollar problem.

Banks were also not releasing the dollar deposits of the SLPA earlier but are now doing so, he said.

“Our deposits in banks they have utilized for urgent other national purposes,” he said.

“So they are releasing that money slowly. I am happy that they are releasing that money little by little. So with that we will be able to manage that.”

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