The state-owned insurance company that provides cover for strikes and riots says a significant shortfall of capital available to continue its business is likely as a result of payouts for claims of R20bn to R25bn arising from the looting and destruction in KwaZulu-Natal and Gauteng in July.
It is in discussions with the Treasury about getting more than the R3.9bn already committed by the government, which it believes is “completely inadequate”.
The SA Special Risks Insurance Association (Sasria), which is insolvent as its liabilities exceeds its assets, expects claims from the unrest to total between R20bn and R25bn, a figure that has steadily increased since July. It has assets of about R10bn, it will get about R7bn from reinsurers and has been promised a R3.9bn capital injection from the Treasury that it expects in January or February.
But Sasria chair Moss Ngoasheng said in a briefing to parliament’s select committee of finance on Tuesday that the Treasury’s R3.9bn still leaves a significant gap between Sasria’s assets and its liabilities.
Sasria was in discussions with the Treasury about injecting additional capital into the company so that it remains within its prudential requirements, is adequately capitalised and could continue operating on a sustainable basis, he said. The R3.9bn is “completely inadequate” to meet its needs, he said, adding that the amount needed from the Treasury depends on the final figure of the claims.
At a recent meeting of the trade & industry portfolio committee, Sasria MD Cedrick Masondo warned that if claims exceeded R20bn it could wipe out all of Sasria’s capital and reserves.
“There are [concerns] that claims could exceed the balance sheet and reinsurance,” Masondo said. The immediate focus was to ensure sufficient cash flow to pay claims and assets had been liquidated for this purpose.
The company expects to return to profitability in the next financial year. An increase in premiums over the next two to three years would contribute to its recovery, Ngoasheng said, though not for personal and small enterprises. Sasria would also expand its market by looking at providing insurance to the uninsured — especially small and medium enterprises — and drought insurance to small and emerging farmers.
However, Masondo noted that there is not much appetite in the market for drought insurance. He said pricing will have to be adjusted to cover the risk and the increased cost of reinsurance.
Treasury director-general Dondo Mogajane said the Treasury would prefer that Sasria’s return to sustainability be achieved through expanding its base without another cash injection.
MPs were told that Sasria expects to pay 80% of claims below R20m arising from the looting and destruction by October and 80% of claims below R60m within six months. So far, 98% of claims amounting to about R20bn have been reported and R2.8bn paid out.
Financial director Bajabulile Mthiyane told MPs during Tuesday’s briefing that Sasria forecast an unprecedented net loss before tax of R12bn in the 2021/2022 financial year on gross premium income of R3.4bn, an increase of R2.8bn from 2020/2021’s premium income. The rise was due to more companies taking insurance with Sasria after the unrest, as well as a premium increase.
In the four months to end-July, Sasria made a net loss before tax of R1.73bn as initial claims from the riots began to flow through. The Treasury has indicated that the effect of the July riots in Gauteng and KwaZulu-Natal could shave off 0.7-0.9 of a percentage point from GDP growth in 2021.
Sasria provides optional additional cover for damages caused by civil unrest or public violence up to a maximum of R500m per standard policy. Holders of private insurance policies pick the level of Sasria risk cover they require, and a levy is added to their insurance premiums, with the amount varying according to the level of cover they need.
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