BUSINESS MAVERICK
South African state-owned insurer Sasria might need more than R3.9bn cash injection
The National Treasury recently stepped in and shored up Sasria’s ability to settle insurance claims to businesses affected by the July unrest. It threw a R3.9bn cash injection to Sasria’s balance sheet. But the insurer might require additional government support to settle outstanding claims.
State-owned short-term insurer, the SA Special Risks Insurance Association (Sasria), might need more government support – over and above the R3.9-billion that the National Treasury recently allocated to it – to settle insurance claims arising from the week of anarchy in July.
Sasria alone doesn’t have the financial means and muscle to settle insurance claims from businesses that suffered damages to their insured properties as a direct result of social unrest in Gauteng and KwaZulu-Natal.
The insurance claims from businesses were conservatively estimated by Sasria at between R10-billion and R20-billion. But the value of expected insurance claims trumped the amount of money that Sasria readily had to settle claims. Sasria had less than R12-billion on its financial books – a combination of cash on hand and investments (listed shares, bonds, and money market instruments) that the insurer could liquidate.
The Treasury stepped in and shored up Sasria’s ability to settle insurance claims by throwing it a R3.9-billion cash injection. The money will be disbursed to Sasria following the conclusion of the Special Appropriation Bill parliamentary processes, which also aims to assist the insurer in meeting its obligations until the end of the government’s current financial year, which runs until 31 March 2022.
The July riots, which coincided with the imprisonment of former president Jacob Zuma for contempt of court, wrought extensive damages to 112 shopping malls and 3,931 stores in Gauteng and KwaZulu-Natal. The damages are expected to make a R50-billion dent in SA’s GDP in 2021.
Further help from the government
Since the July riots, Sasria has paid out insurance claims amounting to more than R5.8-billion.
Sasria might require additional government support to settle outstanding claims, meaning the Treasury or taxpayers would be asked for another financial lifeline.
In a joint statement from the Treasury and Sasria on Monday, the Treasury said it is aware that the insurer, through regular engagements with it, would require “additional government support. …[The Treasury] is therefore working closely with Sasria to finalise the actual financial support need [sic]. The final additional support is dependent on how swiftly Sasria can finalise the total claim amounts.”
The additional financial support to Sasria might be outlined in the government’s 2022 Budget.
In the interim, Sasria believes that it has sufficient cash reserves to meet all valid insurance claims. Sasria works with other insurance industry players – such as Munich Reinsurance, SCOR Africa, Swiss Reinsurance Company, Lloyd’s Underwriters and Hannover Reinsurance – to spread the risk of insured business, a process known as reinsurance. These insurance players can help Sasria to settle insurance claims if it struggles to do so alone.
“Sasria has sufficient reserves including through its reinsurers to meet all valid claims. While the parliamentary processes for additional government support is being finalised, Sasria remains liquid and continues to trade as usual.”
Sasria is 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 unrest – leaving Sasria as the only insurer that does so. Depending on the Sasria insurance cover, businesses can receive a payout of up to R1.5-billion.
While Sasria has already settled more than R5.8-billion in insurance claims linked to the July unrest, it has shifted its focus to settling small claims – those below R1-million – more quickly to speed up relief to policyholders.
It plans to settle at least 80% of all claims between R1-million and R30-million by the end of October. Sasria has also started making payments on bigger claims that are above R300-million. DM/BM
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Prior to the July 2021 insurrection the last significant claims upon SASRIA would have been in the 80’s. For SASRIA to have less than R12 billion in the kitty after so many years does not add up. Maybe time for an investigative journalist to review SASRIA’s financial history.
Laurence, they have had a torrid time with fees must fall and all the service delivery protest damages. But they should still have proper reinsurance and reserves in place.
SASRIA had more that R12 billion in the kitty when the ANC took over in 1994. Unfortunately the treasury has helped itself to huge dollops of SASRIA cash over the years and hence it current position. But let that not stop a proper investigation as we need to know what has happened.
Ray, you are extremely vague about Sasria’s reinsurance treaties. Insurers don’t “work with” reinsurers who may help. They have contractual agreements in place called treaties. They should have had catastrophe reinsurance cover in place for this. If they had, the taxpayer would not be bailing out another SOE.
I agree. It is delightfully vague. R12B seems like an awful little given the quantum of potential exposure which any half baked actuary would be able to calculate in their sleep as being a pretty big number – ergo treaties should have been in place. My guess is the cash is long stolen and SASRIA runs hefty “salary bills and expenses” to account for the rest.
How about dipping into the swag that Spawn of Zuma has stashed offshore? He was after all one of the cheerleaders for the rioters.
Ask them what has happened to the accumulated profits since 1994 when they inherited about R7,5bn in reserves?!!
Should make an interesting investigative story.