Sri Lanka general insurance companies are likely to face financial risks when settling claims for the insurance cover for various sectors as the foreign reinsurance contract of local company – reinsurer the National Insurance Trust Fund’s (NITF) has been terminated.
This was a result of non-payment of premium by a local broker due to scarcity of dollars despite the settling of all dues in rupees by the NITF, Chairman of the Fund M.M. Mawahib Mawjood said.The NITF reinsures with an overseas company through a local agent in Colombo.
The NITF is Sri Lanka’s sole reinsurer, and all domestic general insurers must deposit 30 per cent of their reinsurance cover with the fund; the remainder of 70 per cent has to be distributed to overseas companies by these local insurers.
Mr. Mawjood noted that the payment of premiums to the foreign reinsurer is the responsibility of the local broker and the cancellation of the contract was not a fault of the NITF as it has fulfilled all of its financial obligations.
According to the agreement premium payments to the foreign reinsurer should be made by the local broker after recovering the due amount in rupees from the NITF, he clarified.
Valuable public and private assets and property are insured by leading insurers and 30 per cent of their insurance cover has been reinsured with the NITF, insurance industry sources said.
A critical situation in the re-insurance programme has arisen following the cancellation contract of the NITF by the foreign insurer, official fiscal records revealed.
With the intervention of relevant state authorities and chambers and the NITF, the broker has been able to settle some arrears by obtaining dollars from several local banks but later it had no option other than the defaulting of the premium payments of international reinsurer.
Mr. Mawjood added that with the intervention of the Finance Ministry and the Central Bank measures will be taken to arrive at some sort of a settlement in renewing international reinsurance arrangements. However he noted that NITF provides Strike, Riot, Civil Commotion and Terrorism (SRCCT) cover on the island which is re-sold by all insurers.
This reinsurance cover has not been affected as there was no issue with its foreign reinsurer as the relevant local broker is meeting financial obligations in dollars without any delays, he disclosed.
The foreign currency liquidity crisis in local banks has restricted local insurers’ ability to meet foreign currency obligations, a head of local general insurance company said adding that premium payments to foreign reinsurers and other costs that are typically sourced from overseas have become an issue at present.
