Fitch Ratings Lanka has affirmed Sri Lanka-based National Insurance Trust Fund Board’s (NITF) National Insurer Financial Strength (IFS) Rating at ‘AA-(lka)’. The outlook is stable.
The affirmation reflects NITF’s ‘Favourable’ business profile, meaningful recovery in its financial performance, satisfactory regulatory capital position as well as its conservative investment mix. These positives are somewhat counterbalanced by the insurer’s exposure to catastrophe risks which bring some volatility to its operating performance and capital position.
Fitch assesses 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 its role in implementing state policies. In addition, it has a moderate business risk profile,
diversified participation in exclusive product lines in the non-life and reinsurance space as well as a ‘favourable’ operating scale. NITF is also the country’s only reinsurer, which is further buoyed by a state mandate requiring all domestic non-life operators to cede 30% of their reinsurance to NITF.
The company’s non-life operation - excluding reinsurance and crop insurance premiums – has maintained its market position as the fifth largest non-life insurer, based on gross written premium in 2018.
Fitch expects the insurer to maintain its risk-based capital (RBC) ratio above 250%, well above the regulatory minimum of 120%, in the medium term. NITF’s capitalisation, as measured by its RBC ratio, was 257% at end-2018 before rising to 381% by end-March 2019, supported by improved underwriting profitability.
However, Fitch expects the RBC ratio to normalise towards the end of 2019 due to dividend payments to the state. NITF paid out 86% of its net profit as dividends to the state in 2018, easing from 154% and 113% in 2017 and 2016, respectively. We believe that significant dividend outflows will constrain NITF’s capitalisation, particularly during periods of increasing frequency of large natural calamities.
We believe that the government’s decision to increase its premium contribution to the NITF-managed National Natural Disaster Insurance Scheme to Rs 1.5 billion in March 2019, from Rs 500 million, will help sustain the insurer’s financial performance while supporting the
long-term viability of the scheme. Lower catastrophe claims in 2018 helped NITF’s underwriting profitability recover.
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