The economic and financial loss resulting from the violent insurrection that swept across KwaZulu-Natal and Gauteng (following the incarceration of former president Jacob Zuma on Wednesday, July 7) has been touted as being in excess of R20 billion.
It would be understandable if losses from a catastrophic event were shared between the private insurance industry and the government. But in South Africa, the government decided to go it alone.
Hence, the only party that can cover losses resulting from malicious acts, riots, strikes, terrorism and public disorders is the small government entity known as Sasria (the South African Special Risk Insurance Association).
Read: Sasria: A 40-year story of risk, reward and metamorphosis
Sasria MD Cedric Masondo publicly stated that Sasria has a “strong balance sheet”, and is “well capitalised”, backed by a “strong reinsurance programme”.
All things are relative
The balance sheet may be strong for a small company, but when it comes to massive insurance liabilities, size matters.
As at March 31, 2020, Sasria had total assets of R8.9 billion, and total liabilities of R1.9 billion.
Its investments and near cash amounted to:
|Listed shares||1 393 556|
|Money market fund||1 949 099|
|Bills and bonds||847 761|
|Financial assets||4 190 416|
|Cash and cash equivalents||4 251 741|
|8 442 157|
The insurance contract liabilities amounted to R1.7 billion.
It unlikely that the investments and near cash as at March 31, 2021 will top R9 billion.
Sasria paid R148.8 million towards reinsurance in 2020.
Sasria has not responded to Moneyweb’s enquiry regarding the level of reinsurance that would be available to cover the losses, nor has Sasria indicated with whom it has reinsurance cover.
Sasria is a member of the International Forum of Terrorism Risk (IFTRIP) (reinsurance pools). Sasria did not indicate whether it has reinsurance cover with IFTRIP, or whether membership would grant it access to emergency cover.
Sasria’s annual financial statements refer to an unquantified and undefined “pool of funds” that is available to them.
Sasria conducts ‘relevant research’ into risks
Sasria, according to its annual financial statements, conducts “relevant research into risks” and identifies “the insurance needs of the public through research and development”.
Sasria has not responded to Moneyweb’s enquiry regarding the specific research that it carries out, how it conducts this research, and whether it would have informed the public of any risks.
In 2020 Sasria identified new high-risk events, claims resulting from truck-related events, and claims resulting from volatile strikes, protests and other special risks.
Sasria did not respond to the following questions from Moneyweb:
- Whether Sasria had quantified these risks in financial terms, and whether it had increased its reinsurance cover in 2021.
- Whether Sasria had informed the domestic state security service and the police service that there was an increase in these risks.
- Whether Sasria had considered the possibility that it may not be large enough to cover a major loss event and raised this as a risk in 2021.
It is obvious that Sasria had no disaster plan or worst-case scenario plan in place.
Sasria did not respond to Moneyweb’s questions as to whether:
- It had taken any steps to mitigate risk when violence erupted at the Mooi River Plaza, and whether Sasria had perhaps considered that this was the beginning of massive protest action/domestic terrorism, and that the consequential financial loss to clients could be catastrophic.
- It had been not been concerned by the inaction of the police for three days while protests, violence and incidents of looting and fires escalated.
Short-term insurers regularly send out messages to the public concerning adverse storms, possible hail damage, and flood warnings.
It is incomprehensible that Sasria did not do the same in regards to the attacks on shopping centres and trucks.
No effort was made to stop trucks driving towards the burning Mooi River Toll Plaza.
The likely impact on Sasria’s 2021 financial statements?
This costly insurrection occurred three-and-a-half months after the end of Sasria’s financial year.
However, it is so significant that it will have to be disclosed in Sasria’s annual report for the year ended March 31, 2021, as a non-adjusting significant post-balance sheet event.
The insurance claims would all be short-tail risks, which means they would be expected to be paid out within one year.
If the damages are as high as R20 billion, and Sasria does not manage to plug the gap between the anticipated liabilities and the assets, does this not cast significant doubt on Sasria’s ability to continue as a going concern in the near future?
It will be interesting to see how Sasria’s auditors deal with this.
Blow to the fiscus
The South African Revenue Service (Sars) will have to brace itself for a deluge in claims for value-added tax (Vat) refunds.
This is because Vat was paid on stock purchases, and there will be no sales of much of that stock.
Business operations that were once profitable no longer exist.
There will a loss of jobs, less pay-as-you-earn (PAYE) tax will be collected, and there may be retrenchments costs.
A more detailed article on the full tax implications will follow.
National Treasury and ‘possible solutions’
Sasria issued a press release stating that: “Sasria Management has started engaging the National Treasury as well the Prudential Authority about possible solutions should the worst-case scenario in terms of the value of the damages materialises.”
National Treasury is generally the option of last resort for state-owned entities (SOEs) in trouble.
National Treasury could possibly tap into the National Reserve Fund, which was established under Section 185 of the Constitution. However, an amount may only be withdrawn from this fund “under appropriation made by an Act of Parliament in accordance with this Constitution”.
This is an economic disaster, caused by disgruntled cadres within the ruling party.
Businesses that were passed down in families from generation to generation have been obliterated.
Large businesses that were built up from nothing were destroyed.
ATMs have been destroyed.
The poor are now even further away from jobs and food.
National Treasury will have its hands full in incorporating the full economic impact of this insurrection in the Medium-Term Budget Policy statement, due mid-October.
We should then know the extent of the claims for damages, and how strong Sasria is.
Listen to Fifi Peters’s interview with Sapoa CEO Neil Gopal (or read the transcript here):
Questions posed to Sasria by Moneyweb
Questions sent to Sasria marketing manager Andiswa Madolo on Thursday, July 15, at 18:00:
Dear Mr Madola,
Article for Moneyweb
I am writing an article for Moneyweb and would appreciate your response to my questions below by 20:00 on Friday 16, 2021.
1) In 2020 Sasria identified the following very high risks: claims due to truck-related events, and claims resulting from volatile strikes, protests and other special risks.
- Was this risk quantified in financial terms?
- Was the reinsurance cover increased in 2021?
- Did Sasria consider the possibility that it may not be large enough to cover a major loss event, and raise this as a risk in 2021?
2) The reinsurance premium paid by Sasria in 2020 is only R182 411 000. What was the amount of reinsurance premium paid in 2021, and what amount of cover does this provide?
3) With whom does Sasria have reinsurance?
4) Recent events in KawZulu-Natal and Gauteng have indicated that the “protest attacks” were strategically planned and orchestrated. I will be referring to this in my article as “domestic terrorism and insurrection”. Do you have any comments?
5) Sasria is a member of the International Forum of Terrorism Risk IFTRIP (Re-insurance pools). Does Sasria have reinsurance cover with IFTRIP, or some kind of access to emergency cover, and would this cover R20 billion?
6) Has Sasria ever conducted specific research into the possibility of domestic terrorism and the consequential financial impact on infrastructure, fuel supply, food supply? And then the knock on effect of further protest action resulting from the loss of jobs and lack of food supply?
7) Sasria identifies “the insurance needs of the public through research and development”.
- How does Sasria inform the public of these risks?
- Did Sasria inform the domestic state security service and the police service that there was an increase in these risks?
8) When the protests erupted at the Mooi River Plaza, did Sasria consider that this was the beginning of massive protest action/domestic terrorism, and that the consequential financial loss to Sasria could be catastrophic? Was Sasria not concerned by the inaction of the police force for at least three days?
9) The annual financial statements refer to a “pool of funds” available to Sasria. What are these?
10) In my view the estimated damages, say, R20 billion, would have to be disclosed as a non-adjusting post balance sheet event in Sasria’s annual report for the year ended March 31, 2021. This would highlight the possibility that the short-term future liabilities of Sasria will exceed the assets. Could you please comment?
11) Sasria claimed to have assets of some R10 billion (the 2020 balance sheet indicates R8.4 billion), what percentage of these assets are liquid?
Thank you very much.
Sasria press release
Sasria is committed and ready to honour claims
JOHANNESBURG – Friday , 16 July 2021: The recent widespread civil unrest looting and property that has happened in KwaZulu-Natal and Gauteng during the past few day has necessitated questions regarding how most of the negatively affected businesses would be covered for insurance purposes.
In its 42-year history, Sasria SOC Ltd (Sasria), the state-owned company and only short-term insurer that provides special risk cover to all individuals and businesses that own assets in South Africa, as well as government entities has never experienced riots, violence, looting of this magnitude.
Managing Director of Sasria, Mr Cedric Masondo: “We have been deeply concerned since the outbreak of these riots. We are hard at work attending to the concerns raised by our clients and are attending to the claims we have received to date.”
We would like to assure our clients, partners, and stakeholders that our internal systems are ready, and have been curated to respond with the necessary agility when we are contacted, doing so expediently and effectively. We are working very closely with other insurance companies to make sure that we fast-track the payment of claims that have started coming through especially from individuals and small businesses.
Together with our distribution partners, insurers, and brokers, we have already appointed Loss Adjustors and Assessors that have already started on assessing the extent of damages and we have started paying claims.
Though the assessing work has urgently begun, it must be noted it is still unsafe to travel to some of the hotspots. That means the assessments would take time for some claims especially the big ones, requiring the indulgence of patience from everyone.
We would like to encourage our clients to follow the normal claims process and submit their claims through their insurers via their brokers. We would also like to assure our clients that as of now, Sasria is liquid and ready to honour claims as they come in with the expectation of more claims being lodged.
We take note of the uncertainty around the quantification of the losses or damages that have resulted from the current unrest. At this stage we do not know the full value of Sasria claims as a result of these riots as most claims have not been reported and most are still being investigated by the Loss Adjusters. We anticipate that in about 2 months’ time, we will have a clearer picture once all claims have been reported and investigations and quantification have been completed.
Sasria Management has started engaging the National Treasury as well the Prudential Authority about possible solutions should the worst-case scenario in terms of the value of the damages materialises. Our current efforts will largely be directed towards processing claims and consulting our various stakeholders, at an appropriate stage a statement will be issued.