RISK INSURANCE
July looting aftermath: Sasria’s managing director confirms asking government for another cash injection
Sasria MD Cedric Masondo said he expects the insurer to require ‘far less’ than R14bn from the SA taxpayer to recapitalise its balance sheet, which has come under enormous strain after it paid out nearly R6bn in insurance claims arising from the July unrest.
State-owned short-term insurer the SA Special Risks Insurance Association (Sasria) has asked the National Treasury for further financial assistance to recapitalise its balance sheet after it was weakened by the billions of rands in insurance claims it disbursed to businesses affected by the July riots.
Talks between Sasria and the Treasury about how much money is required to rehabilitate the insurer’s liquidity/financial position are ongoing and the final amount will be revealed by Finance Minister Enoch Godongwana in his 2022 Budget speech.
Sasria MD Cedric Masondo said he expects the insurer to require “far less” than R14-billion from the SA taxpayer to recapitalise its balance sheet, which has come under enormous strain after it paid out nearly R6-billion in insurance claims to businesses affected by the riots in Gauteng and KwaZulu-Natal.
“At this stage, we need to do some actuarial calculations about how much capital we need. We need the Treasury to give us money so that we don’t run into liquidity issues in the future,” said Masondo in a Business Maverick interview.
The funding request — if approved by Godongwana — would be over and above the R3.9-billion capital injection that Sasria recently received from the Treasury to help the insurer honour insurance claims.
Sasria doesn’t have enough financial resources to honour all the insurance claims stemming from the July riots that wrought extensive damage to 112 shopping malls and 3,931 stores in Gauteng and KwaZulu-Natal.
The July unrest has pushed Sasria to ask the government for financial assistance for the first time since SA’s democratic breakthrough in 1994. Unlike basket-case state-owned entities such as Eskom, SAA and Denel, Sasria has been profitable, relied on its balance sheet (and not government bailouts) to fund its operations, and has paid out R13-billion in dividends to the government since 1999.
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, terrorism, and public disorder.
In an ordinary year, Sasria doesn’t receive many insurance claims, even though SA is often hit by waves of protest action linked to service delivery or conditions of employment. The insurer normally receives about 3,000 claims from businesses every year.
But Masondo said that after the July unrest Sasria had received 13,000 claims. These claims are for R25-billion, of which nearly R6-billion has been paid out. By the end of November, Sasria wants to have doubled the value of claims paid.
To pay out insurance claims, Sasria used its cash on hand (supported by the premiums that policyholders pay every month) and the money it raised after liquidating its portfolio of investments (listed shares, bonds, and money market instruments).
Masondo said Sasria was forced to liquidate its investment portfolio, which was valued at less than R10-billion, to raise funds so that there wasn’t a shortfall in its capital available to honour 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 also helped Sasria to settle insurance claims.
Honouring insurance claims also weakened Sasria’s capital adequacy profile.
Financial services companies such as banks, insurers, and stock exchanges are required by the Reserve Bank’s Prudential Authority to have enough money set aside for unexpected events. Financial services companies could cause systemic risk to SA and its economy if they were to collapse because of an unexpected event. So, they need to have capital buffers.
Masondo said the Treasury’s additional financial support to Sasria is crucial because it would restore the insurer’s capital adequacy profile to a good position. DM/BM
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If SASRIA gets tax money to bail them out, is the taxpayer entitled to suing everyone involved, specifically the Zumas?
“At this stage, we need to do some actuarial calculations about how much capital we need.”
If they’d done a few simple sums in the first place, this situation might not have arisen. We pay out R3.9 billion so please give us some money, Treasury. It won’t be as much as R14 billion. And it’s only taxpayers’ money, after all.
Another example of gross incompetence. Didn’t they reinsure?
Wot, reinsurance. Don’t complicate simple things.
The type of risks that SASRIA cover, namely low frequency | high cost events that could become widespread (which happened), should have seen it reinsure large components of these risks to international reinsurers with way bigger balance sheets than SASRIA’s. Any commercial insurer who followed the same poor strategy with similar risk types (eg a global pandemic) would have gone bust! It’s testament to SA’s insurance industry expertise, that the Covid-19 pandemic did not sink any local insurers.
Government should recover this money by suing the instigators of the violence and looting. Which, by the way, raises the question of what has happened to those instigators. After early statements about several instigators having been tracked down, everything has gone very quiet. I presume those instigators, or their handlers, turned out to be loyal ANC insiders, so this will quietly disappear under the carpet like so many other cases.
No doubt we could survive another ten years of court cases and then end up with nothing. I hate to imagine trying to sue the police and politicians for dereliction of duty. One has to realise that this goes so high up into the ANC that nothing will ever happen.
About 25% of SASRIA is spent on reinsurance. The riots was exactly why reinsurance exists. Why are the Swiss not paying?
Play it again Sam!
Tax payer is expected to cough up again.
The existence of reinsurance is a good question that requires a reply from the MD, Mr. Masondo.
We don’t want to have double dipping do we? Collecting from the reinsurers and the taxpayer is not right.
Why has SASRIA paid R13bn in dividends back to government since 1999? Surely that should have been retained as part of the prudential reserve instead of disappearing into the trough of institutionalised plunder.
And-if I read correctly-how and why has it been necessary to liquidate its entire reserves( and why were these only R10bn) to fund payouts of less than R6bn so far?
And using current premiums to pay claims? Is this a Ponzi scheme?
Others are being castigated for such behaviour!
An astute actuary can comment with more authority but something smells here!