Sasria expects insurance claims from destroyed businesses to range
between R10bn and R20bn. The short-term insurer doesn’t have enough money to
cover these insurance claims. National Treasury might come to its rescue
through a taxpayer-funded capital injection to its balance sheet.
SA’s
state-owned short-term insurer, Sasria, expects insurance claims arising from
last week’s looting and anarchy to be so daunting that it might be forced to
ask 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
that have incurred damages to their insured property as a direct result of
social unrest in Gauteng and KwaZulu-Natal. But this is a preliminary
estimation, as Sasria’s team of insurance/claim adjusters is still counting the
cost of the damage that has left 200 shopping malls and 3,000 stores destroyed.
The
billions of rands in insurance claims might break Sasria and force Treasury to
come to its rescue through a taxpayer-funded capital injection to its balance
sheet. Put differently, 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 have
pushed private sector insurers to no longer provide cover for social unrests —
leaving Sasria as the only insurer that does so.
Cedric
Masondo, the MD of Sasria, told SAfm’s
Stephen Grootes that the insurer has been working with Treasury and the
government to “prepare for the worst” as the value of insurance claims from
affected businesses 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.”
Masondo was
not immediately available to comment further when Business Maverickreached out to him.
A government
bailout for Sasria would create a headache for 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 the National Economic
Development and Labour Council – on a range of income-relief measures,
including using Sasria as the main mechanism through which destroyed businesses
could be 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.
In the wake of
fresh 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 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 had 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.
Photo source: facebook individuals
By Ray Mahlaka (21 July 2021)
Article featured in Business Maverick