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.
The affirmation reflects the company’s strong domestic business profile, conservative investment mix as well as strong financial performance and capitalization. This is partly offset by volatility in profitability and capitalization 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.
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NITF’s strong capitalization is reflected in its risked-based capital (RBC) ratio of 314% as at end-June 2018 (2017: 255%, 2016: 385%), which is well above the 120% regulatory minimum. However, capitalization has been highly volatile since mid-2017 due to natural disaster-related losses and large dividend payments to the state.
Fitch believes 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.
