Sasria looks to extend cover to natural disasters and climate risks
Financial reserves of state-owned insurer have been strengthened
30 September 2024 - 05:00
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The SA Special Risk Insurance Association (Sasria), which provides insurance for special risks such as civil commotion, public disorder, strikes, riots and terrorism, is looking to extend its cover to natural disasters and climate-related risks.
This comes as the financial reserves of the state-owned insurer have been considerably strengthened but several regions in SA have suffered severe damage caused by floods and drought. The cost of damage of the June floods in KwaZulu-Natal was estimated at more than R1.3bn, while the 2022 floods in the province caused damaged estimated at R7bn to at least 826 companies.
The Western Cape was also hit hard by flood damage in the past few years.
In his foreword to Sasria’s 2023/24 annual report tabled in parliament last week, finance minister Enoch Godongwana noted that Sasria had returned to a sound financial footing and was therefore engaging with the government, regulators and other stakeholders “on potential ways to expand its coverage. During 2023/24, these engagements centred [on] possibly extending Sasria’s coverage towards climate risks, extreme weather and cyberattacks”.
Such a change would require an amendment to the Sasria Act.
“The intent is to develop a natural disaster pool in the medium to long term, in partnership with the private sector, to provide cover for floods, droughts and other climate-related impacts,” Sasria chair Nolwandle Mgoqi said in her statement in the annual report.
Additional cover
Sasria also planned to reintroduce additional cover above its R500m loss limit for corporate clients.
The July 2021 unrest hit Sasria hard. Claims of R31bn far exceeded its reserves, and the National Treasury provided it with an equity injection of R22bn. This enabled it to settle the claims and restore its solvency cover ratio to regulatory required levels.
At the end of financial 2023/24, Sasria had reserves of R13.34bn, up from the previous R10.7bn. Its profit of R3.3bn brought total profit over the past two years to more than R6.7bn.
To build up reserves, insurance premiums increased by 17.7% in 2023/24 generating insurance revenue of R5.3bn. In addition, R1bn in investment income was earned. The net cost of reinsurance was R1.33bn.
Claims fell during the year, with gross claims incurred (excluding July 2021 adjustments) amounting to R1bn and net claims after reinsurance recoveries to R481m (2022/23: R1.5bn).
“SA experienced few political protests in the 2023/24 financial year, resulting in a small number of insurance claims,” the annual report said.
“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.
“Truck burnings were also a major source of insurance claims ... 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.”
Sasria takes out reinsurance with global reinsurers and it noted that there was a “hardening” of the reinsurance market in 2022, which was marked by a significant reduction in global reinsurance capital, leading to significant price increases.
“This cyclical shift has improved the prospects for many reinsurers, while placing pressure on companies like Sasria, who rely on the reinsurance market to transfer risk. As a result, reinsurance premiums are higher and reinsurer appetite is reduced, particularly within the political violence and terrorism class of business.
Underwriters may also step away from certain markets as they seek to rebalance their books.
“The hardened reinsurance market has a direct impact on our operations and financial position and may require that we find alternative risk transfer mechanisms to lessen our retained risk.”
Sasria CEO Mpumi Tyikwe said the rising cost of reinsurance was a concern, with increases particularly high in SA “owing to scepticism about the market after July 2021”. Conflict in Ukraine and the Middle East added to pressure.
Tyikwe said Sasria was working to reintroduce comprehensive wrap cover (excess of loss cover) for its corporate clients, after it was discontinued in 2022 in response to soaring international reinsurance rates.
Sasria does not sell products directly to its end-customers but enters into agreements with other short-term insurance companies and intermediaries, which sell the special risks cover and collect premiums on Sasria’s behalf in return for a fee.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Sasria looks to extend cover to natural disasters and climate risks
Financial reserves of state-owned insurer have been strengthened
The SA Special Risk Insurance Association (Sasria), which provides insurance for special risks such as civil commotion, public disorder, strikes, riots and terrorism, is looking to extend its cover to natural disasters and climate-related risks.
This comes as the financial reserves of the state-owned insurer have been considerably strengthened but several regions in SA have suffered severe damage caused by floods and drought. The cost of damage of the June floods in KwaZulu-Natal was estimated at more than R1.3bn, while the 2022 floods in the province caused damaged estimated at R7bn to at least 826 companies.
The Western Cape was also hit hard by flood damage in the past few years.
In his foreword to Sasria’s 2023/24 annual report tabled in parliament last week, finance minister Enoch Godongwana noted that Sasria had returned to a sound financial footing and was therefore engaging with the government, regulators and other stakeholders “on potential ways to expand its coverage. During 2023/24, these engagements centred [on] possibly extending Sasria’s coverage towards climate risks, extreme weather and cyberattacks”.
Such a change would require an amendment to the Sasria Act.
“The intent is to develop a natural disaster pool in the medium to long term, in partnership with the private sector, to provide cover for floods, droughts and other climate-related impacts,” Sasria chair Nolwandle Mgoqi said in her statement in the annual report.
Additional cover
Sasria also planned to reintroduce additional cover above its R500m loss limit for corporate clients.
The July 2021 unrest hit Sasria hard. Claims of R31bn far exceeded its reserves, and the National Treasury provided it with an equity injection of R22bn. This enabled it to settle the claims and restore its solvency cover ratio to regulatory required levels.
At the end of financial 2023/24, Sasria had reserves of R13.34bn, up from the previous R10.7bn. Its profit of R3.3bn brought total profit over the past two years to more than R6.7bn.
To build up reserves, insurance premiums increased by 17.7% in 2023/24 generating insurance revenue of R5.3bn. In addition, R1bn in investment income was earned. The net cost of reinsurance was R1.33bn.
Claims fell during the year, with gross claims incurred (excluding July 2021 adjustments) amounting to R1bn and net claims after reinsurance recoveries to R481m (2022/23: R1.5bn).
“SA experienced few political protests in the 2023/24 financial year, resulting in a small number of insurance claims,” the annual report said.
“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.
“Truck burnings were also a major source of insurance claims ... 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.”
Sasria takes out reinsurance with global reinsurers and it noted that there was a “hardening” of the reinsurance market in 2022, which was marked by a significant reduction in global reinsurance capital, leading to significant price increases.
“This cyclical shift has improved the prospects for many reinsurers, while placing pressure on companies like Sasria, who rely on the reinsurance market to transfer risk. As a result, reinsurance premiums are higher and reinsurer appetite is reduced, particularly within the political violence and terrorism class of business.
Underwriters may also step away from certain markets as they seek to rebalance their books.
“The hardened reinsurance market has a direct impact on our operations and financial position and may require that we find alternative risk transfer mechanisms to lessen our retained risk.”
Sasria CEO Mpumi Tyikwe said the rising cost of reinsurance was a concern, with increases particularly high in SA “owing to scepticism about the market after July 2021”. Conflict in Ukraine and the Middle East added to pressure.
Tyikwe said Sasria was working to reintroduce comprehensive wrap cover (excess of loss cover) for its corporate clients, after it was discontinued in 2022 in response to soaring international reinsurance rates.
Sasria does not sell products directly to its end-customers but enters into agreements with other short-term insurance companies and intermediaries, which sell the special risks cover and collect premiums on Sasria’s behalf in return for a fee.
ensorl@businesslive.co.za
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