The Treasury and the SA Special Risk Insurance Association (Sasria) are working on a way for the state-owned insurer to provide large corporates with special risk cover of R1bn, finance minister Enoch Godongwana said on Tuesday.
He said that that cover was key to unlocking further investment in infrastructure by the private sector, adding that enabling Sasria to provide that cover might require further funding by the state.
Sasria, which provides cover for strikes, riots and other forms of civil unrest, had to withdraw from providing this additional R1bn cover due to expensive reinsurance costs that made it commercially unsustainable to continue doing so. The current limit is R500m.
In a written reply to a parliamentary question by DA finance spokesperson Dion George as to whether Sasria would receive further cash injections from the state, Godongwana said, “The short answer to the question is that further cash injection to Sasria will depend on future claims and whether an event that was experienced in July 2021 will occur again.”
The July 2021 looting and unrest in KwaZulu-Natal and Gauteng resulted in widespread theft and damage to property, which led to claims of about R32bn against Sasria. By mid-July 2022 it had paid about R24bn in claims with 6,800 claims outstanding with a total value of R7bn, out of a total of 21,000.
To assist in covering these claims, the government had to inject R22bn into the insurer, which was subjected to a sharp increase in reinsurance rates as the market leader, Lloyd’s of London, believed there would be a repeat of the July 2021 events in the next two or three years. It increased its reinsurance premium more than 1,000%, with other reinsurers following suit.
Godongwana said it was unlikely that the insurer would request another capital injection in the short term (two years), subject to claims due to perils insured by it not exceeding a loss ratio of 58% over that period, and the reinsurance arrangements remaining the same.
“Therefore, in the event that an event similar to one of July 2021 occurs in addition to a loss ratio of 58%, Sasria may need capital injections of approximately R100m for a loss of R5bn; R2.7bn for a loss of R10bn; and R8.4bn for a loss of R15bn. This excludes any assistance that Sasria might require to provide large corporates with an additional cover of R1bn over and above the current limit of R500m,” the minister said.
Sasria came into existence three years after the 1976 student uprising because the private sector no longer had an appetite to cover the type of perils and special risks insured by it.
Godongwana noted that the risks insured by Sasria were, by their nature, volatile and unpredictable, which made it more difficult for it to predict future claims compared to conventional insurers.
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