RAM Ratings Lanka assigns AAA to National Insurance Trust Fund

RAM Ratings Lanka has assigned a claims-paying ability rating of AAA to National Insurance Trust Fund; the rating carries a stable outlook. The ratings are firmly supported by the Company’s state ownership and the Government related business derived thereof.

Incorporated under the NITF Act No. 28 in 2006, NITF is the only reinsurance company in the country; The Company accounted for 5.61% of total insurance industry assets as at FYE 31-December 2009. It is wholly owned by the state and comes under the purview of the Ministry of Finance and Planning, unlike other insurance companies which are regulated by the Insurance Board of Sri Lanka.

The rating is firmly supported by business NITF derives from its state ownership, including mandatory reinsurance and the provision of General Insurance to public servants and Government bodies.

Premiums from this Government-related business amounted to 91.35% of total GWP in FY Dec 2009. These comprised a health insurance policy called Agrahara, Parliamentary Member cover, migrant worker cover, Strike, Riot, Civil Commotion and Terrorism cover (SRCC&TR), and reinsurance.

The commencement of reinsurance was in line with the State’s objective of reducing foreign currency outflows. As such, the Company’s strategic direction is broadly aligned with the Government’s macroeconomic objectives. This is further underscored by its Board representation; meanwhile, NITF remains among the largest contributors to the country’s Consolidated Fund.

The Company’s performance is deemed to be healthy, fortified by its benign claims experience in the SRCC & TR segment and its low cost base. As such, its overall claims ratio clocked in at 39.22% as at FY Dec 2009.

Further, it recorded an overall gross underwriting margin of 60.62% for FY Dec 2009, dipping marginally from 62.62% the preceding year. The healthy gross underwriting margin primarily stemmed from NITF being insulated from competitive pressures in its government related businesses.

Nevertheless, its other General Insurance businesses are prone to intense competition. NITF also recorded an expense ratio of 11.09% in FY Dec 2009, the lowest in the industry, which translated into the industry’s lowest combined ratio. Meanwhile total profits amounted to LKR 3.30 billion in FY Dec 2009, representing a year on year “y-o-y” growth of 15.32% from the preceding year.

The Company’s investments remain conservative and are deemed low risk in line with the NITF Act. The act stipulates that investments should be made in Government bonds, Government securities, or in equity of any company focused on upgrading health institutions; 99.89% of investments were in the form of Government securities as at end-August 2010.

Investment income was a significant contributor to profits, as NTIF’s investment income ratio hit 34.60% in FY Dec 2009. That said, RAM Ratings Lanka opines that under the low interest-rate regime, investment income growth would decelerate in the short to medium term.