Despite a high number of insurance claims due to flooding in Sri Lanka, international ratings agency Fitch has said that local disaster insurers will be able to manage the situation due to low retention levels, but shifting weather patterns may drive up long-term risks.
In mid-May, a strong storm caused much flooding and landslides in several parts of the island nation, with areas along the Kelani River being the most affected. The National Insurance Trust Fund (NITF), a state-owned reinsurer, estimates the claims stemming from the disaster could reach US$107m.
Fitch expects the record level of claims to weaken the combined ratio of non-life insurers for 2016, with higher reinsurance premiums raising future expense ratios. Lower profitability could also affect the capitalization of several insurers with lower capital. Rated entities such as Sri Lanka Insurance Corporation Limited, HNB General Insurance Limited and Continental Insurance Lanka Limited, are likely to weather these challenges.
Non-life insurers in Sri Lanka have low retention in the non-motor lines, with over two-thirds in the fire class, which usually includes flood policies, being reinsured. Sri Lanka’s regulations require insurers to have 30% of their reinsurance with the NITF, and the rest reinsured with the global market.
Sri Lanka’s uninsured rate is very high, with non-life penetration only at 0.6% of GDP. The non-life insurance market is dominated by motor insurance, reaching 65% of gross written premiums in 2015.
In April 2016, the government paid the premium for its first-ever natural disaster policy from the NITF, with the
first claim made just a month and a half after, due to the May floods.
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