Sasria still recovering from 2021 riots

Sasria notes in its annual report that it has still not fully recovered from the wave of social unrest that swept KwaZulu-Natal and parts of Gauteng in July 2021, despite government bumping up R22 billion at the time to help cover claims.

Established as the SA Special Risk Insurance Association in 1979 to provide cover against events that other insurance companies are unwilling to insure (civil commotion, public disorder, strikes and riots), Sasria received nearly 18 000 claims totalling R31 billion following the 2021 unrest.

More than three years later, some of the effects of the burning and looting are still evident.

Sasria CEO Mpumi Tyikwe says the insurer is still facing challenges restoring Sasria, in particular its reserves, to where it should be.

“Of greatest concern is the rising cost of reinsurance. While this impacts insurance markets globally, cost increases are particularly high in SA owing to scepticism about the market following July 2021.

“Sasria is also not immune to global events, including ongoing conflicts in Ukraine and the Middle East, which place added pressure on the reinsurance market,” says Tyikwe.

The cost of reinsurance has increased from just above R1 billion in the previous financial year to more than R1.33 billion to reflect the perception of higher risk in SA, although some of the increase can be attributed to the increase in Sasria’s total insurance book.

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The need to be prepared

Tyikwe points out that the potential for unrest remains.

Sasria is impacted by the macroeconomic and socio-political environment in SA.

Economic growth remains low, and unemployment and inflation high, sowing the seeds of discontent.

Finance Minister Enoch Godongwana says in his introduction to Sasria’s annual report that we should recognise that there is much uncertainty ahead.

“As stated in the 2024 Budget Speech, I encourage South Africans to resist the extremes of blind optimism and crippling pessimism,” he says, hinting that this can cause protests and unrest.

“The importance of [Sasria] cover was made evident following the July 21 unrest, which resulted in R31 billion in claims. These claims far exceeded Sasria’s reserves despite the strong financial position that was exhibited at the time.

“Given the severity of the July 2021 unrest, and to ensure the sustainability of the entity whilst stabilising the communities and economies impacted, National Treasury provided an equity injection of R22 billion. This facilitated the settling of these claims and recovered Sasria’s solvency cover ratio to regulatory required levels,” says Godongwana.

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Claims

Sasria received fewer insurance claims in the financial year to end March 2024. Claims dropped 24% from R1.42 billion in the previous year to less than R1.1 billion.

Sasria increased its premiums and booked higher investment returns that nearly covered cost increases, leaving profit of R3.3 billion (R3.75 billion in 2023).

Sasria chair Nolwandle Mgoqi says the stable operating performance helped to improve the organisation’s financial position, with reserves increasing to more than R13 billion.

“The business experienced a significant reduction in claims compared to the previous year. Despite this reduction, the slight decline in profit emphasises the volatility in the risk that Sasria is exposed to.”

SA experienced few political protests in the past financial year, resulting in a small number of insurance claims.

There was also a decline in worker strikes in 2023, with 83 recorded incidents compared to 86 in 2022.

“There was, however, an increase in the number of service delivery protests during the year, driven by poor water services and the electricity crisis, with load shedding reaching crisis levels through much of 2023,” says Mgoqi .

Management reported that attacks on truck drivers and trucks being set alight were a major source of insurance claims during the year under review.

“Trucks were destroyed along national highways in Limpopo, Mpumalanga, KwaZulu-Natal and the Free State, in protest over the employment of foreigners in the sector.

“Significant damage was also incurred during the Cape Town taxi riots in August 2023, triggered by the enforcement of legal and road safety infractions,” says Mgoqi.

She cautions that risks remain due to low economic growth.

“The International Monetary Fund (IMF) downgraded its forecasts for economic growth in SA to a modest 1.0% for 2024, while the Reserve Bank forecasts 1.2% growth. The IMF is concerned about logistical issues, including the poor status of the country’s rail roads, ports and roads.”

She says that despite concerns, there were no instances of unrest during the recent elections – but there remains potential for political protests.

“At the same time, the government of national unity is expected to trigger macro-economic reforms, investment and trade, and potentially strengthen service delivery, which will mitigate against protest risk and support accelerated economic growth.”

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Fortification from within

In addition, Sasria has been developing better risk models. It says it improved its risk mitigation strategy to better predict and respond to events such as civil commotion, public disorder, strikes and riots.

This includes advances in obtaining better policyholder data to create a detailed view of clients, the location of their assets and the risks they face.

Through these investments, Sasria is aiming to build the capacity to warn clients and communities that a protest, riot or other risk may be on its way.

“Over the long term, we also seek to better understand and address the triggers of this behaviour. This includes engagement with municipalities prone to service delivery protest, community education campaigns, and investments in reducing youth unemployment,” says Mgoqi.

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Climate risk

Sasria is also investigating the possibility of offering new products to insure other events that commercial insurers shy away from.

It has had consultations with government about possibly extending Sasria’s coverage towards climate risks, extreme weather and cyberattacks.

“Globally, climate change is forcing a rethink of business and risk models. Africa is particularly vulnerable to these shifts, owing to water scarcity, food insecurity, and a relative lack of resources to offset impacts,” says Tyikwe.

“The call to action by industry and government is growing stronger, as evidenced by global compacts such as the Paris Agreement and the UN SDGs, as well as South Africa’s climate policies and Just Transition Framework.

“At Sasria, we are investigating these impacts and seeking opportunity to expand our product offering to provide cover for climate-related risks.”

This article was republished from Moneyweb. Read the original here.