Fitch welcomes changes to Sri Lankan fund

Asia

Changes to the structure of the proposed Sri Lankan National Reinsurance Trust Fund, first announced in the November 2006 budget, has greatly increased confidence in the scheme, both locally and internationally. Fitch Ratings expressed concern that the initial structure of the fund whereby 50% of all reinsurance premiums ceded by the market was to be paid into it, would reduce the credit quality of Sri Lankan primary insurers. As the fund was to be largely underwritten by the Sri Lankan government, it would have had a lower credit quality than many Sri Lankan insurers’ existing reinsurers. Fitch also points out that the Sri Lankan insurance market relied heavily on reinsurance to support it through the losses from the 2004 tsunami, and most likely would do so again in the event of a similar natural disaster. However, Fitch welcomed the recent changes to the structure of the fund which will now receive only 20% of ceded premiums. The fund will retrocede its liabilities to a panel of international insurers. In addition, and this still has to be confirmed by the Sri Lankan authorities, it is understood that the reinsurance of several high-risk lines may not be passed to the fund but will rather continue to be covered by international commercial reinsurers. These lines include terrorism, Sri Lankan Airlines (fleet), the global placements of multinationals, kidnap and ransom covers and overseas medical covers.