Fitch estimates gross losses from May 9 riots to be over Rs. 1 bn

• But rating agency says this is manageable for Sri Lankan insurers
• Much of the brunt to be borne by State-owned NITF under SRCCT fund
• Fitch foresees NITF could witness elevated losses in the near term due to ongoing civil unrest

Fitch Ratings yesterday estimated the gross losses of the riots erupted on May 9 at over a billion rupees, but said it would be manageable for the insurance industry as much of the brunt would be borne by State-owned National Insurance Trust Fund Board (NITF) under its Strike, Riot, Civil Commotion and Terrorism (SRCCT) fund.

As a result, the primary insurers will have only a little impact, the rating agency added. 
“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 cover such as an add-on to their non-life products,”Fitch Ratings said. 

The riots that erupted on May 9 following an attack on anti-government peaceful protestors in Galle Face ended up with angry mobs setting fire to vehicles and properties, including houses belonging to politicians. 
While it is too early to estimate the losses from the events accurately, the NITF has started to receive claims from primary insurers. 

According to Fitch, the primary insurers have net retention of Rs. 2.5 million per policy for motor claims under the SRCCT cover, subject to an aggregate amount of Rs.10.0 million, with additional losses passed on to NITF. 
However, non-mortar claims are fully passed on to NITF, subject to any excess borne by the policyholder. 
“Once total losses exceed Rs.1 billion, NITF is able to recover additional losses under its excess of loss reinsurance cover up to a maximum of Rs.10 billion. 

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

NITF had assets exceeding Rs.14 billion by the end of 2020 and its SRCCT fund reported a net profit of Rs.5.0 billion for the year. 

The fund’s assets are predominantly invested in local currency denominated government securities. 

However, the rating agency foresees the fund could see elevated losses in the near term due to the  ongoing civil unrest amid the country’s weak economic conditions. 

In the aftermath of the Easter Sunday attacks in 2019, there was a sharp uptick in the cover provided by the fund as annual premium income rose from Rs.4.6 billion in 2018 to Rs.6.1 billion in 2019. 

Fitch also said SRCCT fund is NITF’s most profitable business line with the loss ratio of less than 2 percent in the last 5 years, except in 2019 when the ratio reached 12 percent. 

While the rating agency does not expect the claims from riots to erode NIFT’s capital position, the weakness in the SRCCT fund could affect its credit rating which is currently at A+ with  Negative outlook. 

Fitch Ratings recently placed the national ratings of all rated Sri Lankan insures, 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.