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Government bailout for short-term insurer Sasria might be in the offing to settle post-looting claims

Government bailout for short-term insurer Sasria might be in the offing to settle post-looting claims
Damage to the Jabulani Mall in Soweto, Johannesburg, after sporadic looting. (Photo: Felix Dlangamandla)

Sasria expects insurance claims from destroyed businesses to range between R10bn and R20bn. The short-term insurer doesn’t have enough money to cover these insurance claims. National Treasury might come to its rescue through a taxpayer-funded capital injection to its balance sheet.

SA’s state-owned short-term insurer, Sasria, expects insurance claims arising from last week’s looting and anarchy to be so daunting that it might be forced to ask National Treasury for financial assistance. 

Approaching the Treasury (or the SA taxpayer) for financial assistance will be a first for Sasria in its 40-year history as the state-owned insurer has relied on its healthy balance sheet and not government bailouts for survival. 

Sasria now expects insurance claims of between R10-billion and R20-billion from businesses that have incurred damages to their insured property as a direct result of social unrest in Gauteng and KwaZulu-Natal. But this is a preliminary estimation, as Sasria’s team of insurance/claim adjusters is still counting the cost of the damage that has left 200 shopping malls and 3,000 stores destroyed. 

The billions of rands in insurance claims might break Sasria and force Treasury to come to its rescue through a taxpayer-funded capital injection to its balance sheet. Put differently, Treasury might bail out Sasria, the only insurer in SA that provides cover for losses or damages to insured property as a direct result of civil unrest, including rioting, strike action, and public disorder. The political violence and riots before SA embraced democracy in 1994 have pushed private sector insurers to no longer provide cover for social unrests — leaving Sasria as the only insurer that does so. 

Cedric Masondo, the MD of Sasria, told SAfms Stephen Grootes that the insurer has been working with Treasury and the government to “prepare for the worst” as the value of insurance claims from affected businesses is likely to exceed the amount of cash that Sasria has on hand. 

“Should we exceed our capacity, there is an option on the table to work with the government so that we can pay the claims – even if it means that we require a capital injection,” Masondo told the radio station.  

“But the government, as a [sole] shareholder [of Sasria], is expected to provide capitalisation to Sasria. That’s what happens to companies when they run into trouble.”  

Masondo was not immediately available to comment further when Business Maverick reached out to him. 

A government bailout for Sasria would create a headache for Treasury, which is facing growing demands to fund income-relief measures for poor households and businesses affected by the social unrest. Business, labour, and community partners have agreed – through several meetings at the National Economic Development and Labour Council – on a range of income-relief measures, including using Sasria as the main mechanism through which destroyed businesses could be compensated for financial losses. 

The past few years have been easy for Sasria. It collected more than R2.4-billion in insurance premiums during the 12 months to March 2020, an 11% increase on its 2019 financial year. It paid out claims amounting to R992-million, which is less than the R1.6-billion in claims it received in 2019. Sasria managed to record a profit after tax of R333-million in 2020. 

In the wake of fresh violence and looting last week, Sasria was confident that it would be able to fund insurance claims from businesses through its balance sheet and without any assistance from Treasury.

Read more here: South Africa’s state-owned insurance company confident it can step in to rescue looted businesses

Since then, Sasria has been inundated with claims as businesses have started to rebuild and repair their operations. At a cursory glance, insurance claims of between R10-billion and R20-billion would bankrupt Sasria if it were a private sector insurer. It has cash on hand amounting to R2-billion. Sasria also had investments worth R8.5-billion (valuation as of 31 March 2020) in listed shares, money market instruments and bonds. But the Sasria board is not yet prepared to liquidate these investments to free up cash. 

Sasria has relationships with global insurance companies that might help it honour insurance claims in SA, through its reinsurance arrangement. Although Sasria has shared the risk of losses or damages to insured properties with other insurers, it is expected to carry most of the burden of honouring insurance claims. DM/BM

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Comments - Please in order to comment.

  • Sam Joubs says:

    So the tax payer gets it in the neck again? The one who was targeted during the riots? The one who is busy arranging his emigration affairs?

  • Geoff Krige says:

    This reads as a great lesson in how insurance works.
    1. Insurance companies claim to carry your risk. They claim to help when you suffer losses. They don’t. Actually they are in it to make a profit. They will only insure what is profitable for them.
    2. Insurance companies claim to understand risk. They do. They ensure that that understanding enables them to avoid any risk to themselves.
    3. Insurance never removes risk. All insurance ever does is spread risk from the 1000 people directly affected, to 10 million people.

  • Johan Buys says:

    We should wait to understand the reinsurance situation. SASRIA does have reinsurance and by design this tends to only kick in for catastrophic scale losses.

    It will be tempting to arrange a pay-out to businesses that did not have SASRIA cover. That will be the end of SASRIA, as why would anybody then ever choose to pay for SASRIA cover in the future?

    • Len Ritchie says:

      Agreed Johan. I think that is the main question.

      The TOTAL liability lies around 50bn. We don’t know how much of that was actually insured with Sasria. Given the fact that Sasria only has about 7bn in assets, this is still far from enough to cover even half that bill, but as the article says, there are reinsurance arrangements. Many insurance companies in the US had a similar problem with the destruction of infrastructure and other property in Texas recently, and those reinsurance arrangements have all worked out fine.

  • Charles Parr says:

    Ray, your final paragraph doesn’t fill me with confidence that this was a well managed business. In fact, I have a sneaky suspicion that SASRIA had more in assets in 1994 than it does now. What happened to those assets? Or is that a stupid question?

  • Bruce Kokkinn says:

    40 years of contributions, wise investments, reinsurance and wise management must have anticipated a black swan event. Time will tell, or has the state been using “profits” to “balance” the budget.

    • Johan De la Rey says:

      I agree, can we have a summary of income, expenses and dividends paid for the last say, 27 years? Seriously, they should have had more reserves by now, full stop. And only companies and businesses that paid the premium should be paid from Sasria. Your hand cannot be in the pot if you did not contribute. Simple.

  • Dennis de Necker says:

    In keeping with the ANC govt’s policy since 1994, the SA taxpayer has just been selected again to pay for the recent ANC street and shopping centre parties, enjoyed only by the non-taxpaying citizens of SA.
    This govt understands where the money must come from.
    The cost of the lavish Gupta wedding (that we funded at Sun City – remember?) pales into insignificance.
    Although we are never invited, they never forget us – we are always involuntarily included.
    And all we have as a reminder of this occasion, is photos and footage showing how everyone else enjoyed the parties.

    • Lynne Shone says:

      Another failed SOE? With all the examples of unrest in Africa how could they have got estimates of possible damages so wrong? Sigh I would like to see the expense ratios compared to other insurers.

      I have also heard alarming stories about unpaid claims going back several years. We don’t just need to look at the cash on their balance sheet but also their creditors from tardy payment of pre-existing claims.

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