A delayed procurement of the reinsurance renewal for the Sri Lanka government backed natural catastrophe insurance facility provided through its National Insurance Trust Fund (NITF) may have saved lead reinsurer RenaissanceRe Singapore and other participants from a loss.
Sri Lanka has suffered a significant level of extreme rainfall as a heavy southwest monsoon, beginning around 18th May 2017, struck the nation resulting in severe flooding and mudslides that caused property damage in the last week of the month.
RenaissanceRe only won the bid to become the lead provider of reinsurance for the facility around the same time, with the government approving the bid on the 26th May according to a report from local news source the Daily FT.
As a result the current flood and mudslide disaster is not likely to be covered by the reinsurance protection and the Sri Lanka government expects to make a drawdown on the NITF without any reinsurance to back-up the payments.
“We will be paying from the funds available as the reinsurance scheme will not cover these claims,” Chief Executive Officer of the NITF Sanath De Silva told the Daily FT.
The previous years reinsurance for the NITF had expired on the 1st April, the reports state, and the government procurement process to renew this had been ongoing since the beginning of the year. But the procurement and gaining all the necessary approvals has taken much longer than anticipated, leaving the NIFT bare of cover for almost two months.
The NITF had to follow Sri Lankan government procurement procedures when going to market for the reinsurance coverage, resulting in it taking longer than perhaps expected to get the coverage in place.
De Silva is confident that the funds are there to make payments to any claimants due to the recent flooding, saying; “We have enough money. There will be a dip in the profit but it will not affect profitability in the future.”
The disaster has impacted a significant number of people, with the latest figures showing that 2,788 houses have been significantly damaged by the floods and landslides, while 18,413 have been partially damaged. 213 people were killed by the severe weather, which in total affected 14 districts and 683,831 people across the nation. The cost to the nation has been estimated around the US$200m mark.
One factor that could have delayed the reinsurance renewal could have been the price, as the outlay for the NITF was almost double this year, at Rs816,750,000, which is almost $5.3 million, compared to the around Rs426 million spent in the prior year.
The facility is larger this year and covers a wider range of catastrophe and natural disaster perils, we understand, but the increased budget required to secure the reinsurance could have delayed the process a little it appears.
The Sri Lanka NITF and its trustees are unlucky that the flooding and landslides disaster has occurred just before it could get the reinsurance coverage signed, also that the government procurement process is so lengthy. A payout from reinsurance would have helped the recovery from the ongoing flooding event, providing valuable capital to help its citizens.
For RenRe and the other reinsurers participating in the NITF renewal though, it’s perhaps a lucky escape, as the policy could otherwise perhaps have been paying out before the ink on the contract had even dried.
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