- July's unrest in KwaZulu-Natal and Gauteng was the most expensive blitz riot to have taken place globally in the past ten years.
- The South African Special Risk Insurance Association (Sasria) estimates that claims linked to the civil unrest in July could amount to between R20 billion and R25 billion.
- Sasria is requesting a capital injection from government, which will help settle claims and ensure it meets capital requirements as outlined by the regulator.
July's unrest in KwaZulu-Natal and Gauteng was the most expensive riot that laster less than a week to have taken place globally in the past ten years, Parliament heard on Wednesday - costing more than the riots spread across 20 US states last year in the aftermath of the police killing of George Floyd in May last year.
Members of the Standing Committee on Appropriations on Wednesday were briefed by the South African Special Risk Insurance Association (Sasria), an entity of National Treasury which covers special risks such as riots, strikes and terrorism.
Cedric Masondo, managing director of Sasria, said that claims linked to the local unrest in July could amount to between R20 billion and R25 billion, while the cost of the unrest in the US last year came in at some $1.5 billion (about R21 billion).
In order to pay out claims linked to the July unrest, as well as meet capital requirements outlined by the regulator, Sasria is seeking a capital injection from government. It wants an allocation of R3.9 billion, through a special appropriation process that Parliament must approve. However, Sasria may require more capital, in order to meet solvency requirements, MPs heard.
Masondo said the R3.9 billion will be used as a "top-up" to cover any shortfalls regarding the payment of claims. He assured Parliament it will not be used to pay other expenses like salaries.
Whatever is not used will go toward recapitalisation so that Sasria's Solvency Capital Requirement (SCR) of 100% is met. Prior to the riots, Sasria's SCR was three times that required by the regulator, the Prudential Authority, he explained. It has now dropped below 100%.
Sasria is required by law to inform the regulator when its SCR drops below 100%. Sasria must further demonstrate a plan as to how to get its SCR back above 100%. Masondo said that with the R3.9 billion, Sasria believes it will get back to an SCR of 100% by March 2022. Even if the insurance company is profitable, the regulator wants to see that its balance sheet is prepared for the "worst-case scenario".
National Treasury's deputy director-general of asset and liability management Tshepiso Moahloli said that in previous discussions with Sasria it was apparent that they would need anything between R2.6 billion and R7.9 billion, especially if the claims exceeded R10 billion - which they normally would be able to cover. At the time, it was expected that claims would amount to between R10 billion and R20 billion.
Moahloli said the R3.9 billion is a "preliminary" figure, and that Sasria had asked for more. Given fiscal pressures - Sasria has to also consider alternative options , apart from a government capital injection, in order to satisfy its SCR requirement.
Negotiations with Treasury are continuing, as information becomes available, said Moahloli.
"The R3.9 billion will not be enough," Masondo told the committee. "We will definitely need to come back to the committee after discussion with Treasury and after exploring other instruments available in the world on how to deal with this," he said. The hope is this is the only time Sasria will have to ask Parliament to allow a capital injection. Masondo described the July riots as a "blip" and that as a business, Sasria will not require capital injections frequently.
In the past ten years - Sasria only recorded losses in two years - in 2019 which amounted to R72 million and a forecasted loss for the 2022 financial year of R12.1 billion, the latter of which is linked to the riots. Masondo, however, added that Sasria is in a better position than it was in July, when it was overwhelmed by claims.
On whether Sasria has the capability to pay for an estimate of R22 billion in claims - it already has R10 billion in assets which can be liquidated, R6.5 billion is expected to be recovered from reinsurance and R1.6 billion to be provided from wrap-up insurance and the R3.9 billion allocation from government.
As at 3 September 2021, R2.8 billion claims had been paid out. Sasria wants to settle claims soon, so as not to carry them into the next financial year, Masondo said.
Apart from relying on a R3.9 billion capital injection from government, and whatever additional capital is required to meet its SCR requirement, financial director, Bajabulile Jabu Mthiyane said that to restore financial soundness, Sasria is relying on premium growth. It forecasts its gross written premiums for the 2022 financial year to grow to R3.4 billion, and R4.7 billion in 2023, compared to R2.8 billion in 2021. This is Sasria also plans to adjust its premium rate, effective from 1 January 2022. It will also buy additional reinsurance cover.
Masondo implored the committee to consider Sasria's request favourably, as it will return to profitability.
Chairperson of the Standing Committee on Appropriations, Sfiso Buthulezi said that the committee is "satisfied" that Sasria is is normally financially sound, and that the unrest was an "unexpected shock no one could anticipate."
He said the company must be supported.