SASRIA is a state-owned company that insures the assets of people, businesses and government entities against riots and terrorism. In a virtual meeting, SASRIA gave a briefing about the R3.9 billion special allocation to it as set out in the Second Special Appropriation Bill.
Following the July 2021 riots in Kwazulu Natal and Gauteng, there was an increased number of SASRIA insurance claims for riot-damaged assets. SASRIA requires a R3.9 billion capital injection from government to assist in increasing its solvency cover ratio.
Concerns were raised about lack of awareness of SASRIA among small business owners. What percentage of black, women and youth-owned businesses in townships were covered by SASRIA? Since it appeared that SASRIA would be able to cover its liabilities, why was a capital injection of R3.9 billion being requested? Members asked why SASRIA did not go to capital markets and raise money given the constrained fiscus; how many claims came from townships and rural towns affected by the July 2021 unrest; the lessons learnt from its 2018 loss; if there is an appetite for reinsurance; and SASRIA coverage in the agricultural sector to safeguard food security.
The Chairperson noted the Committee was still dealing with the Second Special Appropriation Bill, and in this meeting, it would interact with South African Special Risk Insurance Association (SASRIA).
National Treasury is asking Parliament to approve the allocation of R3.9 billion for recapitalisation of SASRIA. This is the first time the Committee would be interacting with SASRIA, as it was the first time SASRIA has requested an allocation through Treasury which makes it an entity of interest to the Committee.
National Treasury introduction
Ms Tshepiso Moahloli, Treasury Deputy Director-General: Asset and Liability Management, asked SASRIA to proceed with the presentation. Treasury would support it in responding to questions. As the Chairperson said, SASRIA was now a customer and important stakeholder to the Committee.
South African Special Risk Insurance Association (SASRIA) briefing
Mr Cedric Masondo, SASRIA Managing Director, introduced his delegation and proceeded with the presentation. Following the July 2021 event, the KZN protest resulted in a 70% loss and a 30% loss in Gauteng, with an expected severity of between R20 to R25 billion. To date, 98% of claims had been reported of up to R20 billion. Most of its revenue comes from the corporate sector. About 20% of its uptake is made up of individuals and small to medium micro enterprises. The riots affected SASRIA investments in bonds, money markets and in South African Reserve Bank accounts and it is now forced to liquidate R10 billion to settle insurance claims from the recent riots.
SASRIA expects to have 80% of claims – approximately R20 billion – settled by October. In its sustainability plan, SASRIA expects to register all claims and appoint a loss adjuster to settle claims with insurance companies as per targets. There is a growth plan to find new markets and new clients, focus on uninsured SMMEs, and exploring a natural disaster pool in the long-term.
SASRIA requires a R3.9 billion capital injection from government to assist in increasing the solvency cover ratio (SCR). Further funding would be required from government with the projected claims of between R20 and R25 billion so that the solvency can increase to 100%.
Ms D Peters (ANC) thanked SASRIA for the presentation. Since this was its maiden presentation to the Committee, Members were getting information that might not have been on their radar for a long time. How well known is SASRIA to communities? Do people and businesses understand that this is an institution that can support them in case of events such as July riots? Although there have been incidents in the past of minimal damage to properties in riots, it is important that South Africans know about this insurer.
Under ordinary circumstances, what is the annual quantum of claims against SASRIA? Unfortunately, there were no clear numbers displayed in the presentation. What is SASRIA’s footprint across the South African landscape especially for black businesses? What number of SASRIA claims are referred to the insurance ombudsman? Have there been challenges by aggrieved claimants for non-payment of claims or claims not paid on time.
The agricultural sector was also affected by the July 2021 unrest, crops were burnt, livestock stolen, warehouses burnt and farmers were not being able to transport produce. What cover does SASRIA offer to the agricultural sector? Since it is almost planting season, how is SASRIA prioritising the agricultural sector to ensure minimal disruption to safeguard food security? Apart from 30% in the eastern part of Gauteng and 70% in KZN, are there other provinces with claims?
Mr A Sarupen (DA) apologised for not having his camera on due to bandwidth challenges. He thanked SASRIA for running well, being financially prudent for many years and not requiring a bailout as a consequence of mismanagement, as is the case with many state-owned entities (SOEs). SASRIA has done well, and is a rare bright spot in SOEs. However, what is the quantum over above the R3.9 billion in this adjustment budget? What amount does SASRIA estimate will be needed in the next financial year? On what basis has it come to that estimation? Is it confident it will not need further capital injections, after a second capital injection in the next financial year? How does the amount of the claims paid out under normal circumstances for riot damage compare with other countries? Does SASRIA pay out more than other countries? Is South Africa more expensive and riskier?
Mr O Mathafa (ANC) agreed that Members were thankful to SASRIA for using their funds and managing its business prudently. In the past the Committee had discussed SOEs that were showing profit, and SASRIA was one of the three at the time. That is commendable. SASRIA noted that there was an increase of claims in 2018, which resulted in a loss. What caused this increase in claims, and how did SASRIA manage the workload caused by an increased volume of claims? Were there lessons learnt that can be applied to the current increased volume of claims for the July riots? He referred to the public's non-awareness of SASRIA. Could there be a lack of initiative by SASRIA in increasing the awareness of people that they can take up this insurance? Have efforts been made to ensure that those that can benefit from the cover are aware of it?
The presentation spoke about the payment of the SASRIA premium within the corporate sector,
with the big corporates being the highest payer, while SMMEs do not contribute much. Could this be a lack of awareness on the part of SMMEs or is it that the assets of big corporates are vast and require a much higher premium than SMMEs? The presentation used the phrase “cover is non-refusable and non-cancellable”. What type of cover is being referred to here? The presentation states that SASRIA would probably make profit in the next financial year. What amount would SASRIA be able to pay out without becoming insolvent and risking its sustainability? It stated its solvency cover ratio (SCR) was below 100% and it might need a further capital injection to bring it to a level above 100%. What is the current SCR? Based on financial regulations, what is the acceptable percentage SASRIA is required to have?
Ms M Dikgale (ANC) said surely in SASRIA’s risk plan it knew that it would one day face what happened in July 2021. SASRIA said it would pay 80% of the claims by October and has already paid R2.8 billion. Will they be able to pay 80% because October is next month?
SASRIA is requesting an injection. There are many financial challenges in all government departments for service delivery in rural areas. SASRIA's business plan is to make money; not to request money. The expectation was that SASRIA plan correctly and come to the Committee with a lump sum of money to be appropriated to assist people in rural areas. SASRIA said it can cover its liabilities more than three times. This means they are doing well and are responsible. Why then should money be injected into an insurance company that is doing so well? Can SASRIA assist those areas by injecting something?
She apologised for sounding harsh. She noted the point about public awareness of SASRIA. Instead of SASRIA asking for an injection, perhaps they should create awareness, make a lot of money, and then assist communities. Traditional leadership offices are open to welcome SASRIA if it wanted to create awareness even in the rural areas, so it knows where to go to assist these communities.
Mr X Qayiso (ANC) commended SASRIA’s good work over the years. There are no governance challenges that one can point out as they have successfully executed their task. When talking about damages, the focus has been on small business, but a sector of the economy often forgotten about are the people trying to do business on the streets who are not aware of SASRIA. For example, in West Street where the violence took place, there are people often forgotten since they have informal businesses and in most cases are not covered by SASRIA. What does SASRIA think about that situation? The company has been managed successfully in the past but has left out informal business at street-level. There was mention about other countries like Chile where violence in the city destroyed property but even small business entities could access insurance. Violence does not discriminate, everyone gets affected including those who are SASRIA members. How can it bring about awareness in future to informal businesses which represent a certain level of income so as to feed their families. For example, if a pig pen that raises R100 a day is destroyed in violence, the owner cannot recover the business. Although it may appear small and insignificant, it could feed a family of seven. After the violence, it would not be counted as something that has been destroyed because those street-level businesses are not necessarily being counted as businesses. They are just termed “vendors” or “people on the streets selling apples and fat cakes”. However, the reality is that given the nature of the economy and the crisis, those people are raising some income to feed their families. Has SASRIA thought of what can be done in the future? There are people who need assistance but do not always look to government for a donation. If there is awareness of the range and level where SASRIA can assist, some would be able to get R500 to restart the business.
The Chairperson thanked SASRIA and said its first-ever presentation was good. Was SASRIA not allowed to go to capital markets and raise money, given the current strain on the fiscus or was it just for the SCR that SASRIA was requesting this? Considering the projections, SASRIA would be able to meet all claims in the next six months until the end of the financial year. Why must the Committee entertain the request for a special appropriation? Treasury could also respond to this. He pointed to 2018 where there was a R1.5 billion loss. What was the shock that led to this? SASRIA is obviously a monopoly. Has this monopoly been challenged, and by whom? How many claims are coming from townships and rural towns affected by the July 2021 unrest? What percentage of businesses in the country are covered by SASRIA? Is SASRIA able to desegregate its percentage of black, women and youth-owned businesses that insure with it? It is important information to have as there is a process of transforming the economy. If SASRIA is not able to provide the information, it can provide this in writing later.
Mr Masondo, SASRIA Managing Director, stated that there were several questions about the penetration level to SMEs and about awareness especially in the townships. This is one of the lessons learned by SASRIA – that although it is an insurance product which is easily available and distributed, yet financial literacy becomes a big problem. One of the Members said he only knew about SASRIA when he worked in the financial sector. Financial literacy is a problem because many people do not realise that SASRIA is so cheap and affordable. SASRIA is in the process of looking at alternative distribution channels. It currently distributes its product through insurance companies which is good for costs, but penetration is a challenge, since SASRIA is dependent on the sales strategy of those insurance companies. If the insurance companies do not want to go to a particular place, then SASRIA cannot go to that place. SASRIA is considering alternative distribution channels of the product using associations or technology.
The hope is that in the next financial year SASRIA can go directly to small businesses and sell the product which they will likely find affordable. Small businesses will be offered the choice. SASRIA does not celebrate that people in townships were affected by the riots but cannot make claims. SASRIA is trying to penetrate this market so that if a similar incident occurs in future, government will not need to offer grants because most people will have SASRIA. Those who would not have it would be out of choice and not due to lack of access.
On the question of why big corporate businesses contribute the most to SASRIA is due to the premium being based on the value insured. For a state-owned company for example, the value would be about R700 billion. It would take the combined value of millions of small businesses to reach that amount. The big corporates generate massive premiums because they have assets all over the country that require more capital. Big corporates contributing more highlights the shape and distribution of the economy. Information on the breakdown of clients was not currently available, but would be sent later to the Committee.
One of the sad realities of transformation is that while there are just under R10 billion in SASRIA assets, 54% of those were managed by black business, which includes 51% black-owned and over 35% female. Out of that 21% were small business in an incubator file who did not have much money. In some cases, they were asset managers, highly skilled women who were starting their own businesses. That is how serious the SASRIA board was about transformation.
Part of SASRIA's procurement plan is being mindful about promoting black-owned businesses wherever possible. SASRIA did a lot to support transformation. Members can go to the SASRIA website to see initiatives that have been done to help poor communities. The money from proceeds has been used wisely to promote development. SASRIA’s main focus was education. Unfortunately, due to this July event, some activities must be cut. SASRIA has built schools all over the country. A national programme is being run which has produced over 140 qualified actuaries. SASRIA has done a lot for this. Hopefully, as SASRIA recovers, those initiatives will continue because they are important.
SASRIA will be doing campaigns and going to rural areas and townships using technology. On the loss ratio, in an insurance environment, underwriting profit is measured by the percentage of claims to the premium. All these years SASRIA has been running an underwriting profit except in 2018. That one year was not a problem because SASRIA anticipates that one in ten years will be a loss, and this was easily absorbed by the financials, and did not require any recapitalisation. The capital was enough.
Mr Masondo replied about insurance ombudsman complaints. All insurance companies are required to record client complaints and present them to the board and the regulators. Clients have the right to go directly to the ombudsman for any complaints, such as poor service or unpaid claims. The last ombudsman indicated that SASRIA had done well in paying claims. There have been complaints to the ombudsman, but SASRIA is one of the lowest in number of complaints about insurance companies. It could be six complaints out of 1000, which is very small. However, SASRIA does not want to have any complaints. There is an anticipation of increased complaints about service this financial year because SASRIA has been overwhelmed by the number of claims. As such, it took time to put systems in place, employ more people and train them. SASRIA encourages clients to complain, because if they do, the issues can be dealt with.
On the impact of the riots on the agricultural sector, several years ago farmers and mining companies never bought SASRIA insurance. SASRIA became part of the drives during the safety events that happen at mines to encourage miners and farmers to buy the product. The product is available and SASRIA’s focus is to pay those claims. Food security is not threatened.
In comparison to riots and protests in other countries, South Africa is quite unique and sometimes this should be something to be proud of. Protests are expected every day in this country since it is a democracy. In some cases, protests become violent and property is damaged. This is where SASRIA comes in. The difference is the extent of the riots. Even in the future, riots are to be expected since someone will be unhappy with something. There would be no need for SASRIA if riots were not expected. However, there are three major uncertainties being dealt with: 1. The ability of SASRIA to raise capital; 2. The ability for SASRIA to get reinsurance because reinsurance plays an important role in a modern insurance economy – where there is a problem with reinsurance, it causes a major problem for SASRIA; 3. The uncertainty of whether what happened in July 2021 could happen again and its extent. SASRIA is trying to deal with those uncertainties.
SASRIA has been making profits and the figures are available. Historically, when the company started in 1979, most of the claims paid were due to politics. This was followed by a stage where there were no claims, or the claims were very small, the country was doing well financially. In late 2010, there was an increase in claims, mainly due to labour disputes and strikes. However, in the last five years, that trend has completely changed. Almost 70% of claims are now service delivery protests, which in legal terms is called civil commotion. SASRIA is now changing its underwriting in how to deal with this.
Mr Masondo explained the term “non-refusable and non-cancellable”. Refusable is when an insurance company does not want a risk if they feel that an individual is very risky, they refuse the cover by either excluding it or quoting a ridiculous premium. SASRIA does not have that luxury, and it was probably a good thing that it was built into the regulations, otherwise SASRIA cannot operate like a normal insurance company that is driven by profit only. SASRIA cannot refuse cover, even where exposure is getting worse. Non-cancellable means SASRIA cannot cancel, even if there is a big claim, because if SASRIA cannot cover it, who else will?
Mr Masondo addressed whether there is now appetite for the private sector to underwrite this business. Since 1979 insurance companies decided that this was not the type of business they wanted to underwrite. In good years, these companies might have believed that they can do so but in years where the country was challenged, insurance companies stayed away. At one point SASRIA asked insurance companies to be offered a slice of the reinsurance, but there was no interest. There will always be an appetite in the London and European market, as 99% of reinsurance is overseas.
The slides indicate why SASRIA needs R3.9 billion. This amount will help SASRIA to focus on paying claims and not worry about cash flow. This R3.9 billion injection will be used as top-up if there is a shortfall. If the money is not used in full, it will be part of the recapitalisation plan. The SCR has dropped below 100% and SASRIA is required by law to write to the regulator when this happens. A plan needs to be presented to the regulator demonstrating the management action being put in place and by when the SCR is expected be once more above 100%. More details about this application cannot be given since it is still under review by the regulator. However, SASRIA’s view is that with the R3.9 billion injection, the SCR should be back above 100% by March 2022. The insurance company can make profit, but the regulator requires the balance sheet to show an acceptable level of capital. Although profits are made, the company must have enough capital to prepare for the worst-case scenario.
On whether the monopoly has been challenged, it has never been challenged, because this is a very unpredictable, risky business, and it is difficult for reinsurers. Over the years, SASRIA has often been accused of having a lazy balance sheet in many quarters. Everyone thought SASRIA had too much money, but such a balance sheet is needed. There should not be a shareholder who will come every year to demand dividend. That is how the insurance company works.
On whether money can be raised in the money market, this could be a discussion with Treasury. SASRIA is mindful of the fiscal squeeze and has believed in the need to contribute to the fiscus through dividends. SASRIA has never asked for money from the fiscus. However, the capital injection needs to happen because it is a big component. Alternatives will be considered with Treasury, but the R3.9 billion is important.
Ms Moahloli, Asset and Liability Management DDG, gave Treasury’s perspective. The R3.9 billion is not the full amount SASRIA initially brought to Treasury for support. The preliminary assessment in July was they might need between R2.6 and R7.9 billion – if claims exceeded the R10 billion which SASRIA could have dealt with comfortably. Although there was limited data at the time, it was a thorough engagement.
SASRIA is now talking about R20 to R25 billion in claims whereas previously the assumption had been between R10 and R20 billion. As such, it is quite significant. In consideration of the current fiscal pressure, the R3.9 billion could be a preliminary number to be put in. Treasury has asked SASRIA to look at other means to supplement whatever capital it requires to deal with the claims and ensure the SCR is at the level required by the regulator, or to have a plan for it to reach that level. There are continuous engagements as more information becomes available. As Members have said, Treasury would not like to see SASRIA come back to the Committee, but to continue to be sustainable and grow its base to provide services on the strength of its balance sheet.
The Chairperson noted the missed question if SASRIA thinks it will be come back to the Committee asking for more, or will it be able to stand on its own with the proposed recapitalisation.
Mr Masondo apologised for missing the question. As the Treasury DDG said, the R3.9 billion will not be enough. SASRIA would definitely need to come back to the Committee after discussion with Treasury and exploring other available instruments. That will be guided by final discussion with Treasury. After this injection and what may be given later, SASRIA hopes to never return to the Committee because of the lessons learnt. A business like SASRIA does not need frequent capital injection since it has a well established business model that can sustain itself.
The Chairperson said a question was raised the previous day by the Parliamentary Budget Office about timing. If one looks at the payment schedule for the next six months, SASRIA is quite comfortable. Why then must there be a need for a special appropriation now?
Mr Masondo replied that the R3.9 billion is covered in the projection. SASRIA is hoping the R3.9 billion will between November and January. It is needed as part of the claims payment.
Ms Moahloli added that the current benefit is hindsight. As can be seen in the requirements, if it were to be put in the Medium-Term Budget Policy Statement (MTPBS) adjustment budget, that money is normally approved around January, which was going to be tight. However, at the time of the special appropriation, the rate at which SASRIA would pay out claims had not been known, and there was a lot of uncertainty at the time. That is why it was put through as a Special Appropriation as opposed to in the MTPBS adjustment budget.
The Chairperson said the questions and presentation were loud and clear and he thanked SASRIA officials. From the interaction, he made the several observations. Firstly, the Committee was satisfied that SASRIA was financially sound and would be able to pay all the claims which it is legally bound to. There were no issues, and there should be no rush to SASRIA as they are in a financially sound position. The Committee notes that some of the re-insurers have paid SASRIA upfront, and that helps SASRIA with liquidity. The Committee notes that SASRIA is growing and continues to be profitable. This shows there are SOEs which are run professionally, with good governance and business principles. SASRIA is a shining example, and they have come to the Committee because of the unexpected shock that no one would have anticipated. As the CEO said, the magnitude of the shock is ranked among the highest in the world in the recent past. The Committee appreciates that SASRIA is not asking for money to pay salaries, but for recapitalisation, so it is in compliance with the requirements of the regulator for the 100% SCR. The Committee sees that SASRIA is a company that must be supported. The Committee commends the board and management for ensuring that the company is run professionally. Coincidentally, Mr Masondo matriculated in the same school as the Chairperson.
The Chairperson said the Committee would feel free to write to SASRIA to communicate on matters, and SASRIA was free to bring anything to the attention of the Committee by communicating through Treasury. The Committee would engage Treasury and SASRIA in the future to track performance. Hopefully SASRIA had taken note of the concerns raised by Members on market penetration to ensure that the project of economic transformation and financial inclusion is progressed.
The Committee adopted the minutes of the 1 September 2021 meeting.
The Secretariat said the Committee was still awaiting approval from the House Chairperson and Chief Whip for the Committee programme.
The Chairperson said the 14 September programme remained intact but they would wait for approval. There was verbal communication that the Committee would be given the right to finish this Bill, because when Parliament meets again in November, it will be the Medium-Term Budget Policy Statement (MTBPS). Moreover, the money to be appropriated is very urgent. As such it is imperative to finish the Bill.
The Chairperson said it was an eye opening meeting with SASRIA.
He thanked Members and support staff and adjourned the meeting.
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