The Select Committee received a presentation from the South African Special Risk Insurance Association (SASRIA) covering its quarterly reports, the challenges it faced in executing its mandate, and the impact of COVID-19 and the recent social unrest on their programmes.
In the financial year to March 2021, SASRIA had “finished very strongly,” with close to R3 billion in gross written premiums. This represented a growth of 15 percent, compared to the previous financial year. The growth had been very aggressive, considering the difficulties that the South African economy had experienced due to the COVID-19 pandemic. SASRIA had been able to make a “nice profit” due to the restrictions on movement and gatherings under the lockdown regulations. The strong growth and turnover of 15 percent year-on-year, along with R800 million in investment income, had contributed towards its profitability.
SASRIA had prepared itself for the probability of social unrest, but the extent of the July unrest had overwhelmed it. Eighty percent of the losses had come from KwaZulu-Natal, with the balance coming from Gauteng. Claims paid to date amounted to R2.8 billion. SASRIA had set a six- to 24-month target to settle all claims and rebuild all projects. Its financial sustainability plan aimed to settle all claims in line with its targets, ensure full recovery from reinsurers, to review premium rates, and to explore a new growth plan which would focus on uninsured small, medium and micro enterprises (SMMEs), a new market and new clients.
Members were impressed by SASRIA’s first quarter results, noting that it had been able to perform very well, irrespective of COVID-19. The fact that it had been able to meet so many of its commitments on its own without coming for a “bigger begging bowl” was impressive. They were concerned, however, about the impact that the social unrest had on SASRIA. If it was hit that hard by the social unrest in July to the extent of insolvency, what would happen if the unrest was nationwide? It was acknowledged that the incarceration of the former President Zuma had been a key aspect of the explanation for the social unrest. However, a fundamental explanation for the unrest was that “the poor were desperately poor and the rich were getting richer.” The Chairperson stated that nobody should be bearing the costs of social unrest, because it was beyond their control and against their prevailing interest -- the social unrest that had occurred was ultimately the responsibility of the State.
Members asked how realistic the timelines SASRIA had set for settling claims were. People were wanting to get on with their businesses, and they wanted to rebuild. They needed know realistically when they could expect to be paid out. Members also wanted to know who would benefit from the cash injection that SASRIA expected from National Treasury, expressing the view that it must benefit the previously disadvantaged masses. Had SASRIA experienced a lot of pressure from their underwriters to indicate that there were going to be bigger expenses? Was it not possible for SASRIA to sustain itself without relying on a cash injection from National Treasury? SASRIA had the capacity and skills enabling it to predict for the future and plan without relying wholly on National Treasury. It was now a matter of repositioning it by addressing and acknowledging its challenges. Members agreed that once SASRIA had consulted with National Treasury, it should report back to the Committee.
The Chairperson opened the meeting by welcoming everyone, and said SASRIA would have about an hour to do its presentation. The presentation would be led by Mr Moss Ngoasheng, Chairperson and independent Non-Executive Director: SASRIA, followed by Mr Cedric Masondo, Managing Director, and Ms Bajabulile Mthiyane, Finance Director.
The presentation would take the Committee through the financial and non-financial performance of SASRIA, and look at whether SASRIA had tended to the requirements the Committee had requested them to go through.
Mr Masondo thanked the Committee for the invitation to present. He said that the presentation would also deal with the impact of the July social unrest. The new business that SASRIA was looking to write around drought had not even been tested in the market. There were certain types of risks which private sector business insurers would not be willing to write. The whole idea was to make drought cover more affordable for farmers.
The Chairperson noted the use of language in defining the social unrest of July. He preferred the term “social unrest” as opposed to “riots,” because the term “riots” implied a mindless revolt of anarchical people.
Ms Mthiyane took the Committee through the past performance of SASRIA. She covered the first quarter performance and what SASRIA was focused on in the current financial year.
In 2017 SASRIA had been close to R2 billion in terms of their gross written premiums, which was its turnover. In the latest financial year to March 2021, it had “finished very strongly,” with close to R3 billion in gross written premiums. This represented a 15 percent growth in comparison to the previous financial year of 2020. The growth was aggressive, considering the difficulties the economy faced due to COVID-19. In the 2021 financial year, SASRIA had recorded a very healthy and strong profit of just over R2 billion (see attached slide titled “July 2021 Financial Performance”).
For the last four years SASRIA had been performing profitably. Progress had been healthy, strong and positive, except in the 2019 financial year, where it had experienced significant claims of close to R1.6 billion, which had led to a loss. In 2020, SASRIA had quickly recovered, with 2021 being a great year. The strong growth and turnover of 15 percent year-on-year, along with R800 million worth of investment income from its investment portfolio, had contributed towards its profitability. SASRIA also had lower claims than usual, and the contributing factor to this was the COVID-19 lockdown. During the lockdown, the lack of movement and restrictions on gatherings had lowered claims. The movement of people and gatherings would generally lead to social unrest and all the special risk defences that SASRIA would have had to cover. It had been able to make a “nice profit” as a result. SASRIA prided itself in having a balance sheet that was strong and healthy with assets that exceeded their liabilities threefold.
Impact of July social unrest
Mr Masondo covered the impact of the July social unrest. SASRIA had prepared itself for the probability of social unrest, but the extent of the July unrest had overwhelmed the organisation. The data indicated that 70 percent of the losses came from the province of KwaZulu-Natal, while 30 percent came from Gauteng. The data also reflected that 98 percent of claims had been reported to SASRIA. This meant that clients had reported claims to insurance companies, and SASRIA had received those claims. Claims paid to date amounted to R2.8 billion, and it aimed to settle claims of less than R20 million by October. Claims below R1 million were being settled by SASRIA’s peer insurance companies. This peer assistance had relieved SASRIA, and enabled it to focus on big claims. It had set a six- to 24-month target to settle all claims and rebuild all projects.
Money received from the reinsurers had helped SASRIA with its cash flow. Its financial sustainability plan aimed to register and settle all claims according to its targets, to ensure full recovery from reinsurers, to acquire a capital injection from the National Treasury (recapitalisation), to explore a new growth plan which would focus on uninsured small, medium and micro enterprises (SMMEs), and to explore the natural disaster pool in the long term.
Ms D Mahlangu (ANC, Mpumalanga) said she was impressed by the first part of the presentation, where SASRIA had spoken about their good performance within the last two years. She was also impressed with their first quarter 2021 results. SASRIA had showcased what great economists they were through their presentation. Some SASRIA members had served in the Presidency, and for this reason would be able to assist the Committee. SASRIA had been able to perform, or to “out-do” themselves, in the past two years and in the first quarter of 2021 during COVID-19. The performances of other entities and government departments from which the Committee had received reports were all bad. The COVID-19 pandemic was the reason given for these bad performances. SASRIA had been able to perform very well, irrespective of COVID-19. It should share the strategies it had used so other entities could learn and enable themselves to also have a good performance under circumstances like COVID-19.
There was concern about the impact the social unrest had on SASRIA’s performance, however. It was hit very hard by the social unrest in July to the extent of insolvency. This unrest had happened for two weeks in only two provinces. What if the same civil unrest had happened throughout the country? What was going to happen? Talks of insolvency were concerning. What would have happened if the July social unrest had lasted for more than two weeks? How had SASRIA's good performance helped the organisation? Was it not possible it to benefit from that good performance and run itself as a business? National Treasury was under pressure because of the July social unrest. COVID-19 had not affected SASRIA, but other departments and entities could not survive the impact of the pandemic. There was still pressure, and money was needed from National Treasury.
Who was going to benefit from the cash injection that SASRIA expected from National Treasury? The social unrest had hit the semi-urban areas, rural areas and townships. SASRIA had mentioned that some SMMEs were not insured. The cash injection that SASRIA expected from National Treasury must benefit the previously disadvantaged masses. How would the cash injection benefit the previously disadvantaged? Was it possible for SASRIA to sustain itself without relying on a cash injection from National Treasury? Her caution was that SASRIA must ensure it did not become like South African Airways (SAA), which the government constantly needed to rescue.
Mr D Ryder (DA, Gauteng) disagreed with some of Ms Mahlangu’s stances. SASRIA had performed extremely well over time, and had never before required assistance from National Treasury. It was an entity that had contributed over the years. The July social unrest had little to do with SASRIA. No one had expected the civil unrest in July, least of all SASRIA. The fact that it was able to meet so many of its commitments on its own without coming for a “bigger begging bowl,” showed its good performance. The R3.9 billion cash injection was still being inspected, it was not going to be processed through this Committee. The cash injection had been promised, but there needed to be an acknowledgment that it was still going to go through processes, and the money still needed to be found. The way that SASRIA had responded to the incidents of social unrest in July had been commendable. It had paid out a number of claims.
Historically, and in terms of SASRIA’s performance, it had aimed at a 25-day turnaround time. There was a bigger volume of claims now, and it would take time, so no one expected a 25-day turnaround time. SASRIA had mentioned that it aimed to have a majority of the claims sorted out between four to six months. How realistic were those timelines? People were wanting to get on with their business, and needed to rebuild. They needed to know realistically if could they expect money next week? How many of them would get paid out after only four to six months?
He asked about the cost of underwriting. This had been quite a big event and had materially changed the risk profile. What had happened to SASRIA’s cost of underwriting? It had spoken about the increased premiums going forward and the fact that those would be phased in. They did not want to do it too quickly, which again was commendable, but one also needed to have a reality check and price in the cost of underwriting. Had SASRIA experienced a lot of pressure from its underwriters to indicate that there were going to be bigger expenses? What would have happened if the social unrest had happened throughout the entire country? What if the social unrest happens again? There had been threats at the end of last month that there was going to be a second round. What would happen the next time Mr Zuma goes to jail? Was there potential that this would impose a much bigger burden on National Treasury?
Mr S Du Toit (FF+, North West) said SASRIA had mentioned that they were looking at possible insurance against droughts. Could it give the Committee more information on that? It might be early days, but the Committee needed a "heads up" on how that would be structured. SASRIA had also mentioned that it was looking at increased rates over a period. What percentage increase was it looking at?
The Chairperson asked if there were Members who had more questions, and Ms D Mahlangu responded on a “lighter note” to Mr Ryder’s remarks, asking what would happen "if the Honourable Dennis Ryder was arrested and goes to jail, rather than Zuma?”
Mr Du Toit said that SASRIA had indicated that there would be a shortfall, despite National Treasury’s R3.9 billion cash injection. What was the shortfall amount that SASRIA was looking at, and what measures were in place? How did SASRIA anticipate to getting hold of those funds?
The Chairperson asked how much SASRIA was hoping to receive from National Treasury. However, it may not be appropriate, given the negotiations that were under way at the moment, for it to tell the Committee at this stage how much it was hoping for. Once a decision was taken, it would be made public. The decision had to be public in terms of the Public Finance Management Act (PFMA). It would also have to go through the Appropriations Committee. However, sometimes government entities had to negotiate sensitively.
SASRIA had mentioned that certain small businesses were not insured. What happened when an entity was not insured? Did it get no SASRIA pay-out, even though social unrest had occurred and one's small business had been destroyed? National Treasury had reported that most of the businesses that had suffered from the social unrest in July were small businesses.
Was there a maximum amount that SASRIA paid? How did it do its assessments to determine the pay-out of claims? When they received a request, did it do an independent evaluation of the request? If so, it was a gigantic task, given the social unrest of July. What if the social unrest had been more pervasive throughout the country and had lasted for a longer? It was not SASRIA’s task alone -- it was the responsibility of government and Parliament.
The term “riots” implied a mindless revolt of anarchical people. The incarceration of former President Zuma had been one key aspect of the explanation for the social unrest. A fundamental explanation for the social unrest was that “the poor were desperately poor and the rich were getting richer.” One percent of the country owned over 55% of its wealth. It was unsustainable. No country could survive without huge unrest, whether racial or class, or a combination of both. It was going to happen until the inequality was reduced. The government was not against those who had wealth. These incidents of social unrest were bound to happen. It was astonishing it had taken so long. Was SASRIA doing some broader analysis on the likelihood of social unrest breaking out again?
There were a multiplicity of reasons for social unrest. The poor were not just sheep. Yes, people had stolen electronic goods and were driving around with beds. Many people from informal settlements and the under-classes in townships were the most desperate. They would not continue to fold their arms. When SASRIA was paying out for “so-called riots,” it was not the super-rich engaging in the social unrest, it was the poor. The social unrest incidents were racially defined because of the nature of the country's society. Was SASRIA doing a projection analysis of the likelihood of more social unrest?
The range and scope of activities that SASRIA had to deal with were more limited than those of other entities. It had the capacity and skills to enable it to predict for the future and plan without wholly relying on the National Treasury.
Mr Ngoasheng said the reality was that SASRIA had a balance sheet of R9 billion, and was facing R20 to R25 billion in claims. The gap between the R9 billion and the R20/R 25 billion needed to be covered by National Treasury. To deal with the impact of social unrest on property and government businesses, SASRIA needed to be recapitalised. Without the recapitalisation, there would be no insurance covering events of social unrest in the country. This would mean that the impact of social unrest would fall squarely on the shoulders of Parliament and National Treasury without an institution like SASRIA. It was important that it was seen as a national asset. There was a need to recapitalise it and make sure that it could continue to provide the insurance that it was providing at the moment. The gap was between the R9 billion and R25 billion. The R3.9 billion was completely inadequate for the purposes and the reality it currently faced.
The issue of the uninsured was not a new phenomenon. A lot of South Africans, particularly black South Africans, were not insured. The majority of SMMEs -- for example, the “Mama-Hlangu who was selling vetkoeks at the corner of a street" -- were not insured”. They were going to have to start building models which made it a requirement to insure anyone who was involved in an economic activity, and who may be vulnerable to social unrest. This would require a significant change in SASRIA’s mandate and its capitalisation. It could not “write business” in the manner it would like unless it received strong support from its shareholder, with its balance sheet geared towards achieving that responsibility. If the social unrest occurred nationwide, SASRIA would be bankrupt, as it was at the moment. National Treasury would also be bankrupt, because it was the responsibility of government to rebuild and remedy the impact of social unrest. It could not be the responsibility of SASRIA. The responsibility to rebuild the economy that had been impacted by nationwide social unrest would squarely fall on the shoulders of the government.
The new business that SASRIA was considering to write around drought had not even been tested in the market. There were certain types of risks which private sector business insurers would not be willing to write. SASRIA, as an insurer of last resort to any kind of social unrest and social disaster, had to consider writing insurance to make sure that the economy could be supported, and people who were impacted had somewhere to be insured. Mr Masondo would deal with the aspect of rate increases, the cost of underwriting and assessments.
Mr Masondo said he would elaborate on the topic of insurance that would cover droughts. This was a project that had been ongoing for almost five years. National Treasury and the Department of Agriculture had been involved. SASRIA wanted to create drought cover for both commercial and emerging farmers. There was not much appetite in the insurance industry to underwrite drought, and the reinsurance companies were withdrawing. The whole idea was to make drought cover more affordable to farmers. Farmers mainly struggled to get drought insurance. The goal was also to look for alternative types of insurance, not just the traditional types.
Mr Dondo Mogajane, Director-General (DG), National Treasury, wanted to make a few remarks for the Committee and SASRIA to consider. He said that if SASRIA could come to a solution that covered the majority of businesses, including increasing the days and the premiums, this could be considered a long term solution. A solution that did not require National Treasury to inject more money beyond what they were already injecting, was the right solution.
SASRIA had been running a very good business and had been getting good returns. It was now a matter of repositioning it by addressing and acknowledging its challenges. It was just a demonstration that there could be more potential damage in future if social unrest presented itself. A solution that talked to a non-fiscal injection would be more ideal. National Treasury would engage with SASRIA to ensure that it could increase the size of its business in the short to medium term. The impact on its balance sheet would be seen only in 2022, when more increased subscriptions come through.
Mr Ngoasheng said that the aim was to recapitalise SASRIA. The business would be sustainable moving forward only if it became a R100 billion business, not a R9 billion business. The team was focusing on methods to increase the business.
Mr Masondo was inaudible for a few minutes due to connectivity difficulties.
When connectivity was restored, he said that the reinsurance had to be increased because SASRIA was buying more reinsurance, and the cost of reinsurance was higher. At this stage, it was busy communicating with the Financial Sector Conduct Authority (FSCA) with regard to pricing, and so it was unable to disclose the details of how much the reinsurance would cost. The price would increase to reflect the risk.
The SMMEs could afford to purchase SASRIA cover. The issue was not with the product, but more about accessibility. Most people did not buy insurance at all. If one did not have insurance, it was very difficult to add SASRIA. SASRIA covered up to R500 million per client. One could buy anything that included material and also business interruptions in total up to R500 billion per year. This was a way of managing and limiting the costs for SASRIA, because if the cover was unlimited it would become unsustainable.
The goal set to pay out claims within the next few months was an ambitious target, and SASRIA hoped that it would be able to meet it. It had increased its staff had also allowed insurance companies to deal with the claims. If the target could be achieved, SASRIA would have done a lot in the way of putting money back into the economy. SASRIA wanted to start building the properties that had been destroyed during the social unrest. These were claims, and not grants. The claims were being processed in the normal way. This needed to be done to protect clients and the purse of the National Treasury. SASRIA eliminated fraudulent claims.
The rate increase would be reviewed and would potentially be implemented in January 2022.
What had SASRIA done to survive during the COVID-19 pandemic? It had paid attention to its clients. It had entered into an agreement with them, enabling them to pay SASRIA in different terms, and this had really helped. In the second quarter of 2020, clients were really distressed and did not have money, and this payment arrangement really helped. When the economy started opening up, they were again able to pay their premiums. It had done a lot of work and campaigning to promote SASRIA. Overall, in any organisation, the stability of the Board and at the management level was important.
Ms Mthiyane responded to Ms Mahlangu’s question about who would benefit from the R3.9 billion. She said this was being injected into SASRIA to ensure it was sustainable and complied with all its prudential authority requirements of having sufficient capital in trading, and ensuring solvency. The company was committed to meeting all its obligations as far as its policyholders were concerned. Every valid and credible policyholder at SASRIA who had a valid claim would benefit from the R3.9 billion capital injection. The aim of the injection was to ensure sustainability, solvency and the meeting of SASRIA’s licence conditions in order to continue to trade.
The Chairperson opened the floor once more for Members to ask questions.
Mr Ryder said that he was surprised to see the 70:30 split in claims between KwaZulu-Natal and Gauteng. Having gone on oversight visits, he had expected more of a 80:20 split. Did this signify a bigger penetration by SASRIA in Gauteng, or a fair reflection of actual losses? There was an indication that the R3.9 billion which had pre-emptively been promised by the Minister may not be enough. What would SASRIA be hoping for in the new annual appropriation in order to make sure that they were fully recapitalised, or able to continue operating in a liquid state?
The Chairperson wanted to ask a question similar to that of Mr Ryder. SASRIA had R9 billion and National Treasury would give them R3.9 billion, and together that would amount to approximately R13 billion. SASRIA expected to pay out claims of between from R25 and R30 billion. Was the gap more or less R12 billion?
Mr Masondo responded that the shortfall would not be R12 billion, because there was money that needed to be recovered from reinsurance. The final amount required from National Treasury would depend on other alternatives. Once SASRIA had consulted with National Treasury, it would report back to the Committee.
Mr Ngoasheng said that at first, SASRIA had expected claims of R15 billion, but as claims came through this amount had increased to R20 billion. Until all the claims were received, SASRIA would not be able to give the Committee a definite number. It needed a full view and time to evaluate other steps that it was taking from a reinsurance view, to try and limit access to the funds in National Treasury. At the moment, it was unable to give a definite number and would consult with National Treasury. This would enable it to return with an amount for the Committee and other Parliamentary processes to approve.
Mr Masondo responded to Mr Ryder’s reference to the 80:20 percent split. He said Mr Ryder was correct and that the split was 80:20 rather than 70:30.
The Chairperson said that the cost of the destruction due to the social unrest was somewhere around R50 billion or more. The payouts were meant to be something around R25 billion. Did this mean that at least half the people who had lost out would not get anything back? There was no culture of insuring amongst small businesses, particularly African small businesses. Disproportionately, it was presumed that it was African businesses, township economies and small businesses that would lose out. Government desperately wanted to revitalise and rebuild these entities.
Mr Ngoasheng had advised that government should apply its mind in determining how everyone could be insured. This would be a challenging task, given the difficulties being experienced in the country, and how they were slowly edging towards some sort of broader social security system. In principle, it was correct that government should apply its mind in determining how everyone got insured, but how this could be done was unknown. Nobody should be bearing the costs of social unrest, because it was beyond their control and against their prevailing interest. The social unrest that occurred was ultimately the responsibility of the State. He commented that “it was us as the ANC.” Why should Mrs Ndlovu, who made a few pennies at the end of the day, bear the consequences? If there was social unrest, where was she going to sell her vetkoek?
As a principle, SASRIA made sense when it highlighted the need for having drought cover and insuring the uninsurable, but this would not happen overnight -- not in the current circumstances, with global trading and the other huge tasks government had to bear through National Treasury. He agreed with SASRIA in principle, but was unsure of how feasible its suggestions were.
Mr Ngoasheng thanked the Committee for taking the time to listen to SASRIA and for asking questions. The team from SASRIA remained committed in ensuring that they revived the organisations that they had been made responsible for.
The meeting was adjourned.
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