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Tuesday, July 16, 2024

N3 truck attacks, anti-government protests bring insurance company to its knees

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Johannesburg – A spike in the severity and number of claims due to protest action has hit the state-owned SA Special Risk Insurance Association’s (Sasria’s) bottom line, leaving it unable to pay dividends to the government for the first time since 2009, MD Cedric Masondo says.

The short-term insurance company — which provides special risk cover for public disorder, strikes, riots and terrorism — recorded its first pretax loss, of R73m, for the year to end-March, down from the previous year’s R1.3bn profit.

The losses were predominantly driven by a 138% increase in net insurance claims, which reached R1.58bn. The number of claims rose 50% from the previous year to 5,443, the highest in the company’s 40-year history.

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The claims amount has also increased, Masondo said.

Events during the course of the year that contributed to the severity of the claims included protests in Mooi River, where trucks were set alight on the N3 and those in the North West calling for the resignation of then premier Supra Mahumapelo.

The number of claims has been steadily rising since 2009, Masondo said, with increases of 20%-30% annually. But the spike in the severity of claims in the most recent financial year was unusual, he said.

“Its difficult for us. We don’t know if last year is creating a new base or if it was just a real once-in-10-year event,” he said.

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Unemployment up

In recent years, service delivery protests across the country have been the major driver of claims, Masondo said, replacing labour strikes as the dominant cause. Service delivery protests now account for about 80% of claims with labour strikes making up the balance.

The rise in service delivery protests and other community action comes as SA’s economy grows at less than 1% and unemployment has risen to 29%.

Due to poorer returns from Sasria’s investment portfolio, driven largely by the poor performance of the country’s equities market, it was unable to make up for the losses on its underwriting business, Masondo said.

Sasria has R8.12bn in assets under management, but during the financial year the portfolio only yielded a return of 3.28% against the companies benchmark of 6.52%.

Despite the losses, the company is still able to pay claims, its suppliers and employees. It remains one of the few state-owned agencies that has not required a cash injection or any form of financial guarantee from the government.

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Masondo said Sasria has plans in place to turn its book back towards profitability. These start with an increase in premiums, which were instituted in the current financial year, he said, the first rate increase Sasria has made in a decade.

“We’ve also looked at our reinsurance programme to ensure we share the risk,” Masondo said.

The current financial year is looking “much better” in terms of the severity, or value, of the claims, he said. But regarding the frequency “there is no relief” as claims numbers continue to rise.

Source: BusinessLIVE

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