SASRIA Annual Report; Municipal FISCAL Powers and Functions Amendment Bill: Committee Report

Meeting report

SASRIA Annual Report

The presentation was presented by Mr Mpumi Tyikwe, Chief Executive Officer, SASRIA.

Evolution of SASRIA

• SASRIA was established in 1979, post the Soweto Youth Uprising in 1976. It came about due to the fact that most insurance companies did not insure assets damaged due to protests as in pre-1994, these types of protests were identified as terrorist attacks under the Terrorist Act. Thus, the state had to assume this risk.
• During the period pre-1994, SASRIA did not pay taxes or dividends.
• In 1989 the SASRIA mandate was extended to include non-political risk, damage from terrorism and unrest.
• In 1998 was the SASRIA Conversion Act which allowed SASRIA to be 100% owned by the state and was able to pay taxes and dividends. In total, to date, SASRIA has paid approximately R60 billion in taxes and dividends to the state.
• July 2021 unrest was a defining moment for the company with claims of R31.5bn with assistance from the government of R22billion cash injection.

Insured Perils

• According to the Reinsurance Act, SASRIA can only cover four perils which are Terrorism, Political, Non-Political, and Labour Unrest.
• For SASRIA to cover any other perils, it will require a change in legislation to do so. For example, SASRIA cannot insure challenges with floods, agricultural pandemic, and future pandemics.

July 2021 impact

• July 2021 unrest happened within a period of 10 days. Within those ten days, there was a delayed response from the State security cluster.
• It has been established that if the security cluster responded to the protest in a timely manner as they usually do, the cost of the claims would not have amounted to R32 billion but half the amount. Security was only deployed on day four.

CAT-Claim bands

• From the July 2021 claims, SASRIA has paid 97% of the claims which amounts to R30.7 billion.
• 3% of the claims have not been paid yet due to legal proceedings still taking place.
• The total number of claims made due to the July 2021 unrest is 17589.
• On average, SASRIA manages about 3772 claims per year.
• This created some administrative problems.

Gross written premium and profit/ (Loss) before tax

SASRIA made its biggest loss of R24 billion but the following made their biggest profit of R3.6 billion. However, the R3.6 billion is not enough as it does recover the loss of 42 years of reserve funds.

Governance and Audits

SASRIA has an effective Board Oversight team.

SASRIA continues to pay taxes, however to recover from its losses and to rebuild its reserves, paying taxes in the mid-term may not be feasible.

Q1 23/24 Financial Performance

Premiums have increased by 29.5%

The net underwriting results in combination investment and other income SASRIA was able to make a profit of R918 million.

Assets under management

• If the loss ratio is under 51%, SASRIA is making an underwriting profit. Premiums received are able to pay claims.
• The investment income gives an investment return to SASRIA.
• SASRIA is low frequency and high-severity business.
• 2018/2019 fees must fall, reported a loss ratio of 64%.
• 2021/2022 1056% insurance claims due to July protest

Current year main events- 23/24 Main Claim Events

• Several truck burnings across the country
• Heavy commercial vehicle claims account for R146 million of claims registered in the current year R46 million.

Reinsurance

• Increase in premiums due to less supply.
• The hard cycle should last about six years due to factors such as man-made and natural catastrophic events such as weather-related disasters.

Global and Local events

• Global and local events affect the cost of premiums as well as the reinsurance market.
• Inflation and interest rates play a role in the premium costs.
• Russia and Ukraine war has caused losses in the aviation market.

Country specific challenges

• July 2021, KZN floods, Covid, Inflation, Greylisting, unemployment, stagnant economy, 2024 elections outcome uncertainty, rising levels of poverty and crime, energy supply and tax under collection. These factors can lead to the next catastrophic event in the future.
• Structural challenges and weak growth have undermined progress in reducing poverty,
• Heightened by the COVID-19 pandemic. The achievement of progress in household welfare is severely constrained by rising unemployment, which reached an unprecedented 35.3% in the fourth quarter of 2021. By the second quarter of 2023, the unemployment rate had declined marginally to 32.6%, still above the already high pre-pandemic levels. The unemployment rate is highest among youths aged between 15 and 24, at around 61%

Loadshedding

• SASRIA anticipates that loadshedding will decrease as there is less demand and refurbishing of infrastructure.
• SASRIA reinsurance costs have increased.

Emerging risk slide 38 (recent local and global risk report)

• There are three emerging risks: State failure with regard to failure of public infrastructure, National grid failure, climate change, and economic activity. Geopolitical instability. Extremely high youth unemployment.
• High Youth Unemployment is a time bomb thus the state needs to find a solution to the problem.

Employee Retention Basket

• The Retention Basket offers broad parameters within which to structure a retention deal while also accommodating the unique needs of the target employee. This flexibility is necessary as no two employees or even jobs are the same. The deal must reflect the salient features of the target and intended outcomes.
• SASRIA employees are well sought after in the industry due to how well SASRIA handled the COVID-19 and July 2021 unrest claims.
• SASRIA is building capacity to ensure they can handle an influx of more than 3000 claims.

CSI Initiatives

• SASRIA has a role to play in addressing the risks previously highlighted that can lead to catastrophic events.
• SASRIA is involved in community upliftment programmes. Math and science revision programmes. Investment in teacher development programmes. Infrastructure development which involves building computer labs, and school libraries and providing improved classroom conditions.
• Thuthuka Bursary scheme which has supported 40 accounting students in the past four years.

Mitigating another July 2021

• SASRIA is considering alternative risk financing sources.
• A document was shared with National Treasury reinsurer of last resort and consideration for SASRIA to explore other special risks.

See attached for full presentation

Discussion

Mr D Ryder (DA, Gauteng) asked how much the premium cost of the insurance has increased by?

He asked whether or not municipalities were permitted to take out insurance with SASRIA in order to protect their assets, especially in instances where assets are vandalised during protest actions. He asked SASRIA to expand on the reason behind outstanding claims from the 2021 July unrest and the reason behind the backlog.

Since  2021, has there been a big uptake of clients as SASRIA provided a service that most insurance companies do not offer?

What is the outstanding liability concerning the floods in Kwa-Zulu Natal (KZN) and Western Cape (WC) floods and how does it fall under SASRIA’s mandate?

Regarding the state guarantee, what amount is SASRIA looking to obtain from the state and what is the bare minimum amount required?

Mr S Du Toit (FF+, North West) asked if SASRIA had been in communication with National Treasury in an attempt to get the State guarantee and if so, what was Treasury's response to the request.

Youth unemployment is a ticking time bomb with violent protests escalating in the country. What are the indicators that SASRIA has identified that can inform the state to help prevent the escalation of violent protests in South Africa?

A possible grid blackout in South Africa was mentioned in the presentation and the impact it will have on the economy. He asked if any other indicators suggest that a grid collapse will occur sooner than expected.

SASRIA highlighted that its funds will need to be replenished due to the loss occurred from the July 2021 unrest. What is the period needed to get the funds replenished to at least R49 billion as the 42 years of reserves was depleted in the payout period due to the July 2021 protests?

Mr M Moletsane (EFF, Free State) followed up on the July 2021 unrest and the outstanding claims. He asked SASRIA when the remaining claims would be paid as it is long overdue.

Ms D Mahlangu (ANC, Mpumalanga) asked SASRIA to define the extent of its mandate and to provide an update on the outstanding claims. She was concerned over the legislation that is governing SASRIA and whether the changes to legislation pre and post-1994- are still relevant to report on.

She asked SASRIA to elaborate on its source revenue and the means in which it is acquired. Does SASRIA rely solely on the state for revenue as SASRIA is a 100% state-owned entity?

She asked if citizens are able to benefit from SASRIA in terms of individual challenges experienced and if so, what assistance is available and how SASRIA intervene in these matters.

Ms L Moss (ANC, Western Cape) asked SASRIA to clarify the issue of payments being done twice and on the Public Finance Management Act (PFMA) late submission and the cause behind it.

Regarding the issue of South Africa’s public infrastructure, especially in municipalities, e.g., Eskom and Transnet, does SASRIA cover public infrastructure as it is at high risk of failure?

Response

Mr Tyikwe stated that he will share the SASRIA organogram which illustrates the employment demographics and distribution within the organisation.

According to the Municipal Act, municipalities are required by law to acquire insurance for their assets. Private insurance brokers acquire SASRIA as an insurer, thus, municipalities are covered by SASRIA.

If one analyses what occurs in the world with protests and in South Africa, there is a relationship between protest action and damages that occur, however damages do not occur at all protests. In South Africa, one of the main causes of protest is youth unemployment (aged 18-35).

The late PFMA submission was due to the unprecedented number of claims caused by the July 2021 unrest, as SASRIA had to outsource some of the claims handling. The auditing was intense due to the scale of the claims. Due to the outsourcing, clients had been paid twice. However, SASRIA has identified these claims and has recovered the funds.

SASRIA is an insurance company owned by the state therefore citizens are welcome to take insurance for their property with SASRIA. SASRIA covers the four perils which are terrorist attacks, political and non-political related protests, and labour unrest, as private insurance companies have risks they are not willing to cover. However, SASRIA does not insure flooding and many insurance companies do not cover the risk of flooding.

SASRIA is not dependent on government funding unless for special circumstances, as government is a shareholder in SASRIA. SASRIA has only required assistance from the state once which was the July 2021 protests.

The probability of the grid collapse is quite low. This analysis was conducted privately, independent of the government and ESKOM and through this analysis, SASRIA has concluded that the possibility is very low thus it is not entirely worried about a possible grid failure. Research has shown that transmission problems are attributed to grid failure.

Unemployment is one of the triggers of a potential catastrophic protest, as well as the state of social grants and the taxi industry. History indicates that when a significant man-made event takes place, such as the July 2021 protest, there is a time-lapse before the next catastrophic event. Bearing in mind that man-made disasters are near impossible to predict.

After the July 2021 protests, premium prices have increased by 47% as reinsurance costs increased by 600%. SASRIA is looking to build reserves of up to R30 billion rand in preparation for future catastrophic events that may or may not occur.

The Chairperson thanked SASRIA for its presentation.

The Chairperson moved on to the next item of the meeting as SASRIA members exited the meeting which was the consideration and the adoption of the Committee report on the Municipal Fiscal Powers and Functions Amendment Bill (MFPFAB) to be considered.

Report of the Select Committee on Finance on the Municipal Fiscal Powers and Functions Amendment Bill (National Assembly- Section 75, B21b-2022)

Mr M Moletsane (EFF, Free State) expressed that he does not support the report.

The report was adopted.

The Chairperson closed the meeting and the meeting adjourned.