State-owned special risks insurer Sasria wants the government to provide an explicit guarantee that it will be reinsurer of last resort while it builds up its reserves devastated due to claims arising from the July 2021 riots.
Sasria provides insurance for damage caused by political and nonpolitical protests, labour unrest and terrorism.
Sasria CEO Mpumi Tyikwe said in briefing National Council of Provinces finance select committee members on Tuesday that it would take Sasria six to eight years at present loss ratios to build up its reserves to about R30bn from today’s R12bn. By then the government could consider not providing a guarantee.
He said that in many countries, including France, Spain and the UK, the government provides such guarantees, which encourage investment.
“Most reinsurers believe the next catastrophic event after July 2021 (in SA) is just around the corner. They are anticipating it is going to happen sooner rather than later,” Tyikwe told MPs. They therefore imposed higher premiums because they perceived the risk to be high.
Reinsurers believe the risks SA is facing include a failed state, systemic failure of public infrastructure, national grid failure, proliferation of illicit economic activity, economic collapse, large-scale disruption of digitally enabled services, climate-change effects, social security systems collapsing, employment and livelihood crises, and geopolitical instability.
Global events including high inflation also affect reinsurance premiums. “That is why we are asking for government support in the form of a guarantee to cushion us against these various premium increases,” said Tyikwe.
He believes SA is sitting on a “time bomb” of high youth unemployment that could result in protest action. Anger over service delivery could also be a trigger for protests.
Sasria’s reinsurance premiums rose sharply from 2021/22 when it paid R130m for R6.5bn of cover. In 2022/23 this had risen to R411m for R5.8bn in cover and this financial year at R363m for R5.1bn in cover. Previously the excess payable was R1bn, but this had risen to R2bn.
Sasria, which has paid R16bn to the state in the form of tax and dividends, also wants to be relieved of the obligation to pay dividends in future so it can build up its resources to deal with another significant event such as the July 2021 riots which resulted in over 17,000 claims of R32bn, of which R350m is in litigation or disputes. Only 3% of the claims remain unpaid. The state had to inject R22bn into Sasria so it could meet its obligations.
Tyikwe said Sasria was in a much better financial position after increasing its premium income by 48% in 2022/23. Premiums had been increased to compensate for the 2021 losses. Gross premium income had risen from R3.2bn in 2021/22 to R4.6bn in 2022/23 and Sasria had turned around from a pretax loss of R24bn in 2021/22 to a profit of R3.6bn.
Performance in the first quarter of 2023/24 was good with low loss ratios, premium income 29.5% higher than the year before, and a profit of R980m. If the loss ratio is below 55% it means Sasria is making an underwriting surplus. In 2021 the loss ratio was an unprecedented 1,056%.
Recent events leading to claims included the truck torchings (R10.4m), student protests (R13.3m) and the Cape Town taxi strike (R35.6m). Most of the present claims came from attacks on heavy commercial vehicles.
Part of the endeavour to build up its reserves will include cutting costs.
Sasria has not yet tabled its 2022/23 annual report in parliament — the due date was the end of September — as Tyikwe said it was still under consideration by finance minister Enoch Godongwana.
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