Sri Lankan insurers brace for 2025 profit squeeze as non-motor losses mount

Low retention and strong reinsurance keep most rated credit profiles intact.

Sri Lankan insurers’ losses from the Ditwah Cyclone are expected to increase demand for non-motor coverage and comprehensive motor policies as public awareness of climate-related risks grows, according to Fitch Ratings.

Although insurance losses from the flooding caused by the cyclone will likely have a limited impact on most rated insurers in Sri Lanka.

This resilience is attributed to low retention levels in non-motor segments and robust reinsurance protections.

Whilst the agency expects the sector’s underwriting profitability to face pressure through 2025, these losses are not expected to threaten the credit profiles of most rated companies.

Total insured losses from the event are projected to exceed previous records due to the scale of the damage.

Early industry data from January 2026 shows that 24,477 claims have been submitted with an estimated total value of $0.17b (LKR51.7b). 

Of these, 17,601 claims have already been accepted, leading to $0.02b (LKR4.75b) in compensation payments so far.

Motor insurance claims account for $0.02b (LKR6.56b) of the total estimated value, whilst non-motor claims—covering housing, small businesses, and infrastructure—represent $0.14b (LKR45.22b).

The National Insurance Trust Fund Board (NITF), the country’s sole local reinsurer, faces higher exposure than primary insurers.

The NITF is currently operating without retrocession cover following the expiry of its previous contract in January 2023.

Whilst the NITF is mandated to receive 30% of reinsurance cessions from all domestic non-life insurers, its risk is somewhat mitigated by primary insurers’ retention limits and a July 2024 regulatory restriction preventing it from accepting large individual risks until new cover is secured.

Recent procurement notices indicate that the NITF is currently seeking a new retrocession programme to commence in February 2026.

Operational challenges, including limited access to flooded areas and repair facilities reaching full capacity, are slowing the full assessment of losses.

However, Fitch notes that capital buffers remain satisfactory across the rated sector.

Exposure is further limited by tighter policy terms introduced after the 2016 floods, as well as standard exclusions for landslides in property policies.

($1.00 = LKR308.55)