NITF obtains retrocession cover for 2016

National Insurance Trust Fund (NITF) has successfully concluded the placement of its retrocession cover for 2016.  

In a significant development, several reinsurers of global repute such as Munich Re, Scor and Lloyds Syndicates – Cathedral and Amlin – have accepted shares of this program placed by Lockton Companies LLP, the world’s largest privately owned insurance brokerage firm. 

The lead reinsurer will be Cathedral – Lloyds Syndicate while all reinsurers on the panel have ratings of ‘A-’ (A.M. Best) and above, meeting the requirements stipulated in the Request for Proposals (RFP).

The selection of the broker and the lead underwriter was done by a Ministry appointed Procurement Committee (MPC) on the recommendation of a Technical Evaluation Committee (TEC) following a duly-structured and transparent procurement process. In carrying out the selection, the committees considered many aspects such as cost, coverage and security. The final selection was approved by the Cabinet of Ministers at its meeting held on 16th December 2015.

Retrocession refers to the purchase of reinsurance by a reinsurer to manage its risk exposure. Since NITF accepts 30% of all reinsurance placements made by general insurance companies operating in Sri Lanka, it is exposed to a significant risk in the event of a major natural catastrophe or even a very large single loss arising from a very large risk. Hence, it was imperative that NITF obtains a reinsurance cover (retrocession) to deal with such exceptional losses that exceed a certain value.

Under the retrocession program placed for 2016, NITF has obtained a cover of Rs. 5 billion subject to a deductible of Rs. 1 billion. Therefore, in the event of an exceptionally large claim, NITF will bear up to Rs. 1 billion of losses while reinsurers on the panel will bear up to Rs. 4 billion. Since NITF’s share of Reinsured claims is 30%, it has been estimated that this cover is sufficient to meet its share of claims arising from a disaster that could cause losses of up to about Rs. 16.6 billion.

Due to the competitive nature of the procurement process, NITF was able to secure a very sound retrocession program at a very reasonable cost. The ability of the country and the insurance industry to withstand the financial impact of a major natural calamity of the scale of the 2004 tsunami is now substantially strengthened due to the retrocession cover obtained by NITF.