RAM Ratings Lanka reaffirms NITF’s ratings at AAA/P1
RAM Ratings Lanka has reaffirmed National Insurance Trust Fund’s (“NITF”
or “the Fund”) long- and short- term claims-paying ability ratings at
AAA and P1 respectively; the long-term rating has a stable outlook.
NITF’s ratings reflect its status as a statutory body of the
Government of Sri Lanka (“GOSL” or “the State”) and the Fund’s systemic
importance as the sole provider of health insurance coverage to
government employees (known as Agrahara); Strike, Riot and Civil
Commotion and Terrorism cover (“SRCC & TR”) and reinsurance in Sri
Lanka.
Meanwhile, the ratings are also upheld by the Fund’s good liquidity
and strong capitalisation levels.Incorporated under the NITF Act No. 28
of 2006, NITF is the only reinsurance company in the country and was
formed in line with the state’s objective of reducing foreign currency
outflows via reinsurance ceding. The Fund’s strategic direction is
broadly aligned with the government’s macroeconomic objectives.
Almost all of NITF’s gross written premiums (“GWP”) are generated
from the captive businesses derived from state ownership. In addition,
it is one of only 2 entities (the other being Sri Lanka Insurance
Corporation (“SLIC”)), that are allowed to offer insurance cover to
government-owned enterprises. NITF contributes around Rs 2 billion
annually to the State’s Consolidated Fund, rendering it the
fourth-largest contributor. Although, NITF’s overall claims ratio
weakened to 52.33% during fiscal 2011, it continued to remain lower than
most industry players owing to minimal claims stemming from the SRCC &TR
fund.
Nevertheless, the lower claims ratio for SRCC & TR was offset by
higher claims stemming from the Agrahara health insurance scheme.
Notably, the high claims ratio for Agrahara is due to the relatively low
premiums charged relative to the high-risk exposure, as NITF offers this
policy as part of the state’s social obligation as well as high claims
arising from this segment.
Overall, its underwriting performance was upheld by the captive
market from state institutions and its low cost operating model as NITF
operates with only 2 branches.
Aided by an improved top line and lower overheads resulting from its
low cost operations, its overall expense ratio remained low at 12.76% in
FY Dec 2011 (FY Dec 2010: 12.66%).
The Fund’s combined ratio too remained low at 65.09%, albeit slightly
weakening from last year.
All in all, the fund recorded a pre-tax profit of Rs 2.15 billion in
fiscal 2012 (fiscal 2011: Rs 2.33 billion),moderating from last year
owing to the relatively lower returns from its investment portfolio amid
receding interest rate scenario in 2011.
On a separate note, NITF continued to maintain a conservative stance
with regards to investments, with around 75% of investments in the form
of government securities in fiscal 2011.
This is also reflected in its investment yields, which compared lower
than most of the peers’. Looking ahead, we envisage NITF’s investment
yield to improve amid the upward trend in interest rates.
Meanwhile,reflective of its investment portfolio, NITF’s liquidity
position is deemed satisfactory, as underlined by its ratio on liquid
assets to total assets of 0.74 times as at end- December 2011, i.e.
stronger than those of most of its peers.
As a statutory body, the Fund does not have any share capital. NITF’s
capitalisation of Rs 8.35 billion as at end-December 2011 was made up of
accumulated profits since inception, subsequent to deducting the annual
payments made to the GOSL. Although, the ratio on accumulated funds to
total claims weakened to 4.78 times by end-Dec 2011 (end-Dec 2010: 5.07
times), we perceive NITF’s capitalisation to be strong. |