The Nedlac business partners have proposed that government guarantees be extended by the Treasury to Sasria after it has gradually become apparent that the short-term insurer might not have sufficient cash to settle claims for looted and vandalised businesses. 

This proposal was also tabled at a meeting on Tuesday between business leaders, more than 90 chief executives, and President Cyril Ramaphosa. A “blanket” government guarantee has been proposed for Sasria’s balance sheet to protect the insurer from using all of its cash resources to honour insurance claims. In other words, the government – through its guarantees – would be on the hook for insurance payouts if Sasria doesn’t have enough cash resources. 

“Ramaphosa and Treasury are keen on the proposal to support Sasria,” said a capital markets analyst who attended the Tuesday meeting. 

SA’s state-owned short-term insurer was established to cover civil unrest claims, and the company is well capitalised. But even with its substantial cushion, Sasria expects insurance claims arising from the recent orgy of looting and anarchy to be so daunting that it might be forced to ask the 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 in Gauteng and KwaZulu-Natal that have incurred damages to their insured property as a direct result of social unrest. But this is a preliminary estimation, as Sasria’s team of insurance/claim adjusters is still counting the cost of the unrest, which saw at least 200 shopping malls and 3,000 stores destroyed. 

Some players in business who are part of discussions at Nedlac said that Sasria insurance claims could easily be more than R20-billion (possibly R40-billion), considering the extensive damages that businesses have suffered.  

In their early calculations, the Nedlac partners expect claims from supermarket retailers alone to be R25-billion, because they not only incurred damages to their stores at shopping malls, but also their logistics/distribution centres. The structural damages to stores and distribution centres will be costly to repair.

The billions of rands in insurance claims might break Sasria and force the Treasury to come to its rescue through a taxpayer-funded capital injection to its balance sheet. Put differently, the 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 pushed private sector insurers to stop providing cover for social unrest — leaving Sasria as the only insurer that does so. 

Cedric Masondo, the MD of Sasria, told SAfm’s Stephen Grootes that the insurer had been working with the Treasury and the government to “prepare for the worst”, as the value of insurance claims 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.”  

A government bailout for Sasria would create a headache for the 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 Nedlac – on a range of income-relief measures, including using Sasria as the main mechanism through which destroyed businesses are 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. 

After the 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 the Treasury.

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 has 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.

But Sasria cannot use all its cash resources for claims relating to the unrest. The SA Reserve Bank’s Prudential Authority, a regulator of financial service companies such as banks and insurers, requires Sasria to have sufficient cash reserves set aside for unexpected events in future. This might make Sasria’s possible bailout from the government more compelling. DM/BM