Sri Lanka’s National Insurance Trust Fund (NITF) is facing a severe financial crisis that threatens the stability of the country’s domestic insurance sector. The NITF, once profitable with a pre-tax gain of Rs. 1.8 billion in the first half of 2024, reported a loss of Rs. 361.92 million during the same period in 2025, according to the Central Bank Financial Stability Review 2025. The fund’s core underwriting operations also took a significant hit, with an underwriting profit of Rs. 746.4 million in early 2024 turning into a loss of Rs. 538.3 million by mid-2025.
The crisis worsened following Cyclone Ditwah, which caused widespread physical damage across Sri Lanka, estimated at US$4.1 billion. A critical factor exacerbating the NITF’s financial distress was the lapse of its international retrocession coverage, which expired in January 2023 and has not been renewed. This left the fund without access to global risk-sharing arrangements, significantly increasing its exposure to domestic catastrophe losses.
By law, the NITF is required to absorb 30% of local reinsurance cessions from private general insurers. As a result, it inherited an estimated Rs. 11 billion in losses out of the Rs. 58.5 billion total insured losses nationwide. Analysts say this forced assumption of peak catastrophe risks without external reinsurance support undermined the NITF’s operating model, turning a key revenue source into a systemic vulnerability.
In response, regulators have imposed emergency measures to prevent further deterioration. The Insurance Regulatory Commission of Sri Lanka has prohibited the NITF from underwriting new facultative reinsurance for large commercial risks until it can secure a comprehensive international retrocession programme. At the same time, the creditworthiness of the fund has significantly declined, prompting deeper oversight.
The government has stepped in to stabilize the sector, providing indirect support through its substantial sovereign cash reserves of Rs. 750 billion. Instead of a direct bailout, the Treasury has increased the issuance of Treasury bills to address short-term liquidity shortages and placed the NITF under rigorous fiscal surveillance as part of the broader Fiscal Strategy Statement. This approach aims to restore the fund’s financial health over the long term.
To cope with the crisis, the NITF is also undertaking extensive internal reforms. A senior Finance Ministry official indicated that the fund is accelerating digital transformation efforts, particularly within its Agrahara Healthcare Scheme. This program covers approximately 900,000 public servants and retirees, reaching up to 3 million beneficiaries when including their dependents. The initiative seeks to improve operational efficiency, reduce administrative costs, and safeguard critical cash flows during this turbulent period.