Fitch Ratings has downgraded the National Insurance Trust Fund (NITF) Board’s National Insurer Financial Strength (IFS) Rating to BBB-(lka) from BBB(lka), placed it on Rating Watch Negative, and then withdrawn the rating altogether after the state reinsurer declined to keep participating in the rating process.

The one-notch downgrade reflects “heightened liquidity pressure and weakened capital position” at NITF’s reinsurance arm, driven by losses from Cyclone Ditwah that the state insurer will have to absorb entirely on its own balance sheet, Fitch said in commentary published by EconomyNext.

The Insurance Regulatory Commission has estimated total insured losses from Cyclone Ditwah at LKR 58 billion. As Sri Lanka’s only domestic reinsurer, NITF absorbs a large share of insured losses from local primary insurers — but it has had no retrocession (reinsurance for reinsurers) in place since its cover expired in January 2023 and was never replaced. Fitch said the lack of retrocession cover was a key driver of the latest downgrade and had also been cited in earlier rating actions.

NITF’s regulatory risk-based capital ratio was around 739 percent at end-March 2025 on total equity of about Rs. 35 billion, but Fitch said restrictions on moving capital between NITF’s separately regulated business segments would “significantly constrain the company’s ability to cover flood-related losses or ease near-term liquidity pressures.” Fitch said it had no information on NITF’s likely actions to meet policyholder obligations.

Fitch then withdrew the rating altogether, citing NITF’s decision to stop participating. “Fitch will no longer have sufficient information to maintain the rating. Accordingly, Fitch will no longer provide rating or analytical coverage for NITF,” the statement said.

NITF is also the sole writer of Sri Lanka’s Strikes, Riots, Civil Commotion and Terrorism (SRCC&T) cover and acts as the state’s backstop for political-violence and catastrophe risk. The withdrawal removes external public credit oversight from a balance sheet now carrying a large unhedged catastrophe loss.

Source: EconomyNext.