Sri Lanka’s National Insurance Trust Fund (NITF), a statutory institution designed to provide financial protection against major national risks, is confronting a dangerous combination of financial deterioration, inadequate catastrophe protection, procurement controversy and governance weaknesses that could ultimately threaten its capacity to meet future liabilities.
The institution retains a powerful structural advantage. It has the exclusive legal right to receive a mandatory 30% reinsurance cession from private general insurers operating in Sri Lanka. It also administers the Agrahara healthcare scheme covering more than three million public-sector employees and retirees. These arrangements guarantee substantial premium flows. Yet the latest financial deterioration raises serious questions about whether those structural advantages are being undermined by weaknesses in risk management.
The sharpest warning comes from the reinsurance business. Profit before tax of about Rs.1 billion reportedly turned into a Rs.538.3 million underwriting loss, while the institution ultimately recorded a net loss of Rs.361.92 million. The deterioration was serious enough for Fitch Ratings to downgrade NITF’s National Insurer Financial Strength rating from ‘BBB(lka)’ to ‘BBB-(lka)’ and place it on Rating Watch Negative.
At the centre of the problem is the collapse of international retrocession protection. NITF’s international retrocession policy expired in January 2023 and was never renewed, leaving the institution with effectively 0% international reinsurance protection.
That vulnerability became painfully evident when Cyclone Ditwah struck. Total insured market losses from the disaster were estimated at approximately Rs.58 billion. Under the mandatory 30% cession arrangement, NITF became responsible for a substantial share of those losses. Without international retrocession, however, the fund had to retain the catastrophic exposure on its own balance sheet.
This is not merely an insurance problem. It is a public-finance risk.
The fund’s investment concentration compounds the danger. Approximately 97% of its invested assets are held in domestic government securities, with only 3% in cash or cash equivalents. While government securities may provide stability, such concentration leaves limited diversification and potentially constrains liquidity when enormous catastrophe claims suddenly arise.
Audit scrutiny has also highlighted a sharp increase in outstanding reinsurance claims provisions, rising from around Rs.3.23 billion to Rs.3.24 billion before eventually reaching Rs.5.61 billion.
Meanwhile, NITF’s Gross Written Premium initially jumped 48% following a government directive requiring 100% of motor Strike, Riot, Civil Commotion and Terrorism (SRCC&T) premiums to flow directly to the fund. SRCC&T subsequently represented 58% of total GWP, creating an extraordinary concentration of risk behind apparently strong premium growth.
Procurement controversies add another layer of concern. The award of a sensitive SRCC&T reinsurance tender to foreign entity Tysers Insurance Brokers triggered appeals to the President and Finance Ministry by local industry groups. They alleged that domestic professional regulations were bypassed, an unregistered intermediary was used and crucial compliance information was not made available to authorities.
The tender reportedly required bidders to provide Rs.11.5 million, or US$35,385, in bid security directly to NITF bank accounts.
The Agrahara scheme illustrates a different institutional weakness. More than Rs.617 million has been disbursed, including over Rs.522 million to government employees, Rs.42 million to semi-government employees and Rs.53 million to pensioners. Yet the system receives 22,000–25,000 hard-copy claims every month, while only 18,000–19,000 could previously be processed manually, leaving a recurring backlog of 4,000–6,000 claims.
The recent conversion to a paperless digital registry under Chairperson Dr. W. M. Vishaka Wanasinghe is therefore an important corrective measure. But digitisation alone cannot repair a balance sheet weakened by inadequate catastrophe protection.
NITF now requires far more than administrative modernisation. It needs transparent procurement, independent scrutiny of past decisions, restoration of international retrocession, stronger capital buffers and a credible strategy for reducing concentrated risk.
For an institution carrying the state’s insurance responsibilities, the question is no longer whether reform is desirable. It is whether reform can arrive before the next catastrophe exposes the full extent of the vulnerability.