The state of political risk cover since the July unrest

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FIFI PETERS: This week marks the second anniversary of the 2021 July unrest that followed the incarceration of the former president of South Africa, Jacob Zuma.

To update us on the current state of political risk cover and whether the climate has become a lot more costly for cover, I’m joined by Muzi Dladla, executive manager for stakeholder management at Sasria.

Muzi, thanks so much for your time. I reflected on this conversation and how quickly time flies. I don’t know about you, but it does come as a surprise that two years have already gone since we saw the most unstable time in our democratic history. How would you describe the state of operations at Sasria now, two years after the event?

MUZI DLADLA: Good evening, Fifi. We have now really settled down. The biggest thing was the financial side of things, which we have now managed.

I think even in terms of operations, we’ve settled 97% of all the claims we had.

So we are back to normal, really, because we outsourced quite a number of things. We appointed additional staff, and we needed to bring in additional resources as well in certain areas, particularly in the complex claims space.

All of that has now been resolved. We are back to normal capacity, and things are really back to normal at Sasria.

FIFI PETERS: Sure. We were just having a conversation around business rescue, and I wonder if you would have any colour as to how many companies that were affected by the riots were not able to come out of it alive?

MUZI DLADLA: Quite a number of them. We did not do a study to look at the ones that were outside of our insurance cover. But just picking up from the media and from some government steps,

it looks like there were quite a good number of businesses, particularly medium-sized businesses, that were affected quite a lot and were unable to get back on their feet.

FIFI PETERS: Right now also, Muzi, there’s a lot of coverage on the torching of trucks. It’s becoming problematic again – there are a whole lot of question marks as to what the driving force is. What do you make of that, and is this the kind of cover you protect?

MUZI DLADLA: Coincidentally, this happened exactly on the ninth. If you recall, in 2020, 2021, it was on the 9th of July, actually, when the whole thing started. It started pretty much similarly to how it happened now, with trucks being torched on the N3. And then it spread – obviously all over the country.

Read: Attackers torch trucks on another key SA trade route

But you have not seen that being the same. The [police] response was quite quick, and it was contained. At this moment, we don’t know the merits, and that investigation has not been done as yet to determine exactly what happened so that we can have a clearer picture in respect of whether this would be an assessor claim or it would be a traditional insurance claim. We would need to have assessments done, and only then would we be able to be in a position to say that.

FIFI PETERS: Okay. But in previous years, two years ago round about this time, when trucks were being torched, was that a direct Sasria claim or was it quite complicated based on the outcome of the investigations?

MUZI DLADLA: Not necessarily. Remember, you have your traditional insurance, which covers you for all the perils you have. Torching of trucks or just fire basically as a peril would be one of those. What makes it a Sasria peril, then, is if there are other triggers; for instance, there has to be a protest, there has to be a riot – and there are various definitions that qualify what that is. For instance, if you have a few people along the road who hijack a truck, for instance, and burn it, or something like that.

So that’s why the merits of that particular incident need to be investigated.

But July 2021, it was quite obvious; it was an uprising of great proportion, I might add.

FIFI PETERS: Just reflecting then, as a business, you said that the matters have settled down a little right now, two years on. Your membership – has it grown in the past two years?

MUZI DLADLA: The membership has grown, particularly on the property side, because I would say a majority of the business that you write is property in terms of proportion, in terms of revenue. We make the most revenue from property.

Where we’ve seen a little decline at some point, but then it started picking up again was on the trucks because, remember, the trucks had the highest rate of increase. After a few months of the increase, we saw quite a decline. I think people have obviously understood why this was done, and yes, the numbers are back again. They’re picking up.

Read: Impact of the attacks on trucks on Van Reenen’s Pass

FIFI PETERS: Sure. I remember when you guys announced those increases, the industry said they were unaffordable for them at the time. But what are premiums looking like now, after that last increase that you put into effect? Have they gone up even further, or has there been a bit of relief for your clients?

MUZI DLADLA: We do an annual rate check, if you like, where we analyse the risk; we obviously look at the profile. And then we rerate again to get to the technical rates, the rate that actually should be charged. We do that on an annual basis.

We are still not in the position we should be in, in terms of the correct premiums.

But, because of all the strain and understanding that the majority of clients at this point find things quite tough, we opted not to have an additional payment increase as a result.

So we are still keeping the rates as they were two years ago.

FIFI PETERS: Okay. And what does that mean for your balance sheet and financial soundness? We have just been reflecting on matters at the Post Office and what got them into that position, and the story of SOEs that are in need of financial help is well known by most South Africans, given that it’s their taxes that generally tend to bail them out.

But are you in need of government support?

MUZI DLADLA: No, absolutely not. It’s a good question you are asking because it allows me to clarify that in particular. Sasria is a business. We are obviously an insurance company that is regulated by the Prudential Authority. We’re a registered insurer, and we have to comply with the solvency capital requirements.

So in terms of that, the recapitalisation – I’m not going to call it a bailout because it wasn’t – there were no issues necessarily at Sasria that relate to misconduct or governance issues. It was a matter of the levels of defence in terms of risk litigation that did not respond accordingly. And then, that led to a position where we had our liabilities exceeding our assets as a result.

So in terms of our solvency capital requirement, we are on target, meaning we are pretty much within the risk appetite.

There are two parts that we still need to build up. The first part is catastrophe-risk management, meaning the estimation of liabilities as a result of a catastrophic event, because that is what’s quite difficult for any business pretty much like Sasria to determine. So that is where we know that there is not enough buffer. In other words, if there should be another July 2021 today, we would not be in a position to cover all of that risk.

So we’ve only pretty much had one year to recover. We need a few more years because when we were recapitalised, we were put in a position where we meet at least the solvency capital requirements. We were not given an additional buffer that would shield us should anything like this happen again.

There are various things that we’re doing.

So in terms of needing capital from the state, definitely not. We don’t need it. In terms of meeting the solvency capital requirement, we definitely need the solvency capital requirement.

But again, we still have the same issues that we had in July 2021 in terms of the triggers now and in terms of the socioeconomic issues that you would understand, and we are now working on strengthening at least the levels of defence.

We have four levels of defence all the way up to the police, all the way to the army. So we are introducing an integrated risk approach where we share with the private sector, together with the state intelligence, so that we know at any given time what is happening. And at the same time, the response will have to be coordinated.

Read: July unrest: Security services failed to protect life, limb and property

I’ll give you an example. In July 2021, if we had had a coordinated response, like the one we are putting together now, then Sasria would have been able to contain or, in fact, cover all of those losses without having to require the state to come in.

So it shows you that [in terms of] risk mitigation and the risk containment component of this, if it is done right, Sasria can recover by itself in a few years’ time to build up enough reserves to pretty much handle another July 2021 without the help of government.

FIFI PETERS: Okay. Well, it’s interesting, the strategy that you have shared. It’s good to hear that you are being proactive about potential risk and how to ensure that you’re in a stronger position should [risk] transpire.

Muzi, always a pleasure. Thanks so much for your time, sir. Muzi Dladla is the executive manager for stakeholder management at Sasria.

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