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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.

Sri Lanka to conduct threat assessments for presidential candidates

ECONOMYNEXT – Sri Lanka’s President Ranil Wickremesinghe has submitted a cabinet paper proposing security measures for presidential candidates and former presidents, following the recent attack on former US President Donald Trump during a campaign rally in the USA.

“This proposal suggests the appointment of a committee to conduct threat assessments and provide necessary security for Presidential candidates as well as former Presidents,” a statement from his media division said.

The committee will include the Secretary of the Ministry of Public Security as Chair, the Chief of Defence Staff, the Inspector General of Police, the Chief of National Intelligence, and the Senior Deputy Inspector General of Police/Elections.

A Deputy Inspector General of Police will be appointed to oversee all security arrangements.

The committee and the designated officer will work closely with the Election Commission to ensure seamless coordination of security arrangements, the PMD said.

After today, July 17, Sri Lanka’s Election Committee is empowered to announce a date for the presidential polls due to be held this year.

Minister of Foreign Affairs M U M Ali Sabry has said the election will be held on October 5 or 12.

Members of the Samagi Jana Balawegaya (SJB) have said that the government should be accountable for the security of Opposition Leader Sajith Premadasa, the SJB’s presidential candidate. (Colombo/Jul17/2024)

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Sri Lanka rupee closes flat at 303.80/304.00 to US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed almost flat at 303.80/304.00 to the US dollar on Wednesday, from 303.70/304.00 to the US dollar on Tuesday, dealers said, while bond yields were down.

A bond maturing on 15.12.2026 closed at 10.60/75 percent, down from 10.82/92 percent.

A bond maturing on 15.12.2027 closed at 11.60/38 percent, down from 11.65/75 percent.

A bond maturing on 01.05.2028 closed at 11.72/78 percent, down from 11.80/90 percent.

A bond maturing on 15.09.2029 closed at 12.05/10 percent, down from 12.05/20 percent. (Colombo/Jul17/2024)

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Sri Lanka stocks close down, John Keells, Hemas, Hayleys push turnover

ECONOMYNEXT – The Colombo Stock Exchange closed down on Wednesday, data on its site showed.

The broader All Share Index closed down 0.41 percent, or 48.44 points, at 11,830; while the more liquid S&P SL20 Index closed down 0.52 percent, or 17.91 points, at 3,456.

Turnover was 1.2 million. A big part of this (Rs597mn) came from John Keells Holdings Plc (down at 194.25).

“There was foreign buying interest on John Keells and Hemas,” Softlogic Stockbrokers said.

“We saw foreign interest in selective counters persist.”

Hemas Holdings Plc contributed Rs143mn to the turnover, and the share closed down at 81.10.

Hayleys Plc contributed Rs156mn to the turnover, and the share closed up at 101.50.

The three crossings made up 67 percent of the turnover.

The capital goods counters, with all the bluechips, was the leading sector contributing to the day’s turnover.

With the exception of Hayleys and a couple of other companies, the counter saw most stocks close down or flat.

Sentiment around the banking counters also remained negative.

“The volatility in investor sentiments persisted. There are a lot of spectators in the market over the last few weeks, despite some positive news coming in.”

Treasury bill and bond rates have also dropped.

The top contributors to the ASPI were Melstacorp Plc (up at 86.00), SMB Finance Plc (up at 0.70), and TeeJay Lanka Plc (up at 40.00).

There was a net foreign inflow of 392 million. (Colombo/Jul17/2024)

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