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Sunday December 4th, 2022

Sri Lanka’s NITF outlook cut to negative, AA-(lka) rating confirmed

ECONOMYNEXT – The outlook of Sri Lanka’s National Insurance Trust Fund, a fully state-owned insurer which also re-insures some domestic risks has been cut to negative from stable by Fitch, as dividend payments the higher claims hit its capital ratio.

NITF’s risk-based capital (RBC) ratio, had fallen t 180 percent in the third quarter of 2019 from 257 percent last year.

“The fall in the insurer’s regulatory capital position was caused by higher claims in its inward reinsurance business, which exceeded the net retention of LKR1 billion under NITF’s reinsurance arrangements, as well as large dividend payments to the state,” Fitch Ratings said.

“The higher claims have increased claim liability provisions, which in turn have increased the regulatory capital requirement.”

The full statement is reproduced below:

Fitch Revises Outlook on National Insurance Trust Fund to Negative; Affirms at ‘AA-(lka)’

17 DEC 2019 01:29 AM ET

Fitch Ratings – Colombo/Sydney – 17 December 2019:

Fitch Ratings Lanka has revised the Outlook on Sri Lanka-based National Insurance Trust Fund Board (NITF) to Negative from Stable and has affirmed the insurer’s National Insurer Financial Strength (IFS) Rating at ‘AA-(lka)’.

KEY RATING DRIVERS

The Outlook revision reflects the increased volatility in NITF’s capitalisation, measured by the regulatory risk-based capital (RBC) ratio, which fell to 180% in 9M19 (2018: 257%). The affirmation reflects NITF’s ‘Favourable’ business profile, financial performance that is better than that of the industry and conservative investment mix.

The fall in the insurer’s regulatory capital position was caused by higher claims in its inward reinsurance business, which exceeded the net retention of LKR1 billion under NITF’s reinsurance arrangements, as well as large dividend payments to the state. The higher claims have increased claim liability provisions, which in turn have increased the regulatory capital requirement.

We expect the provisions to reduce gradually as claims are settled, improving the RBC ratio, although the insurer’s capital position may come under further pressure if it continues to pay high dividends, especially during periods of large losses. NITF’s dividend pay-out averaged over 100% in the last three years.

NITF’s combined ratio rose to 94% in Q319, from 86% in 2018, following large claims in the inward reinsurance class. Despite this, its combined ratio was below industry average, supported by modest claims from the Strike, Riot, Civil Commotion and Terrorism programme and NITF’s low-cost operating model.

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.

Fitch ranks NITF’s business profile as ‘Favourable’ compared with other domestic non-life insurers due to its substantive business franchise, supported by its full government ownership and role in implementing state policies. NITF is the only domestic reinsurer and a state mandate requires all domestic non-life operators to cede 30% of their reinsurance to NITF.

NITF’s unique product mix, with minimal claim history in some of its business lines, is offset by high exposure to the risk of losses from catastrophe events and its reinsurance business.

NITF’s investment policy is conservative. It is only permitted to invest in government securities and the equity of hospital projects under its legislation. The insurer mostly invests in short-term government securities to maintain sufficient liquidity.

RATING SENSITIVITIES

Downgrade Rating Sensitivities:

– Deterioration in the RBC ratio to below 250% for a sustained period.

– Deterioration in the combined ratio to above 100% for a sustained period.

– Significant weakening in NITF’s business profile, such as a large
reduction in government-related business.

Rating sensitivities that could result in an Outlook revision to Stable:

– An improvement in the RBC ratio to consistently above 250% while maintaining a ‘Favourable’ business profile and the combined ratio remaining below 100%.

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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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