Insurance losses from flooding caused by Cyclone Ditwah in Sri Lanka are expected by Fitch Ratings to be limited for most insurers. In a 17 December commentary, the credit ratings organisation said the country's sole local reinsurer, the National Insurance Trust Fund Board (NITF), is, however, vulnerable to losses due to its lack of retrocession cover.
Fitch also expects the sector’s underwriting profitability to come under pressure in 2025, although it is unlikely to threaten the credit profiles of rated insurers. Non-motor losses are expected to be largely covered by reinsurance, but rising motor claims and reinsurance reinstatement premiums will weigh on underwriting results. Fitch anticipates insured losses to exceed previous records because of the severity of the flood damage.
Cyclone Ditwah caused widespread flooding and landslides across Sri Lanka. The disaster has been blamed for 643 fatalities and affected around 70,000 people. Local authorities also reported damage to infrastructure, homes, and small businesses.
Industry estimates suggest that large commercial losses and a cluster of motor claims will constitute the bulk of insured losses. A full assessment of losses is expected to take time due to operational challenges.
Despite this, Fitch says the overall impact of the disaster is expected to be manageable for rated insurers, thanks to their capital buffers and robust reinsurance programmes.
However, Fitch believes NITF’s inwards reinsurance business will face headwinds, compounded by the absence of retrocession cover for this segment following its expiry in January 2023. Capitalisation in the segment remains weak. As Sri Lanka’s sole domestic reinsurer, NITF is required to accept 30% of reinsurance cessions from all domestic non-life insurers. Its exposure arises mainly from proportional and non-proportional treaty arrangements, although primary insurers’ retention limits and reinstatement premiums help mitigate this risk. Exposure would have been even higher if not for regulatory measures introduced in July 2024, which prevent NITF from taking on facultative reinsurance covering large individual risks until adequate retrocession is in place.