Insider In Full: London PV underwriters fear $1bn loss from South African riots
Headline losses in London political violence (PV) market from violence in South Africa could potentially reach a combined total of around...
However, there is still a huge amount of uncertainty around the final loss quantum, with multiple conflicting factors such as the threat of ongoing violence and the fairly quick reopening of some shops set to impact the ultimate loss tally.
South Africa has confronted a wave of riots and protests since ex-president Jacob Zuma was handed a 15-month jail sentence for contempt of court after he failed to attend an inquiry into corruption charges dating back to his presidency.
This resulted in serious bouts of violence, looting and a shortage of basic goods, with large swathes of the action occurring in Johannesburg and KwaZulu-Natal.
Johannesburg is known to have the most insured assets out of the two.
Supply chains in the country have also been thrown into chaos, with warehouses, distribution centres and trucks destroyed, and major trade routes disrupted.
South Africa has its own state-owned political violence specialist insurer, Sasria, with which most riot claims on the ground will be lodged.
There are two main channels via which the London market will be exposed to the strikes, riots and civil commotion losses (SRCC) in South Africa: the cat reinsurance cover for Sasria, and an accompanying “riot wrap” binder, brokered by RKH Reinsurance Brokers, which is now part of Howden Specialty. The binder provides BI and excess property reinsurance cover for Sasria losses.
Sources have said that they expect roughly two-thirds of London market losses from the South African riots to come via the Sasria reinsurance placement, and around a third from the binder. Although most losses will come either from the Sasria placement or Howden binder, there are still some isolated instances of SRCC cover purchased directly from the London market.
It has been suggested that the wrap binder could generate losses in the low hundreds of millions once all claims have been made.
Many people believe the worst of rioting is over, and most shops and supermarkets have acted quickly to reopen – this may help subdue some potential insurance claims if the violence continues to settle.
However, there is talk that Zuma will be allowed to temporarily leave the Estcourt Correctional Centre, where he is being held, so he can attend the funeral of his brother Michael Zuma.
Some fear that this may lead to further violence and looting.
As previously reported, Swiss Re and Scor are the among the reinsurers likely to have significant exposure to political violence losses ceded to the reinsurance market by South African state-owned insurer Sasria.
The state-owned carrier’s annual report states the five reinsurers with the biggest shares of its reinsurance arrangements for 2020, which include the big four European reinsurers and Lloyd’s. It is not clear whether percentage shares have altered since the publication of Sasria’s annual report.
Sources have further told Insurance Insider that London carriers Axa XL and Lancashire both have lines on the Sasria reinsurance placement.
Meanwhile, the Howden wrap binder is shared between 10 carriers, with Canopius and Munich Re both writing the largest lines, closely followed by Beazley and Markel.
Talbot and Chaucer are also among the names on the binder but with a lesser share.
Sources identified Convex as one carrier which had reduced its line size on the binder at the end of last year and has since come off completely, although the carrier will still have some residual, if much reduced, exposure to riot losses.
Sasria recently said political riots in South Africa were likely to result in direct insurance claims for damage and theft of 7bn-10bn rand ($481mn-$683mn), although it did not specify whether this was an industry-wide or Sasria-specific loss estimate.
According to the South African insurer’s annual report, the maximum any one insured can claim from Sasria directly is 1.5bn rand. Combined losses in excess of 500mn rand from one event will then trigger Sasria’s catastrophe reinsurance.
The PV market is not known for altering premiums on a global scale after large-scale political violence events have occurred in one particular region. Sources have suggested that they do not expect rate rises across the board as a result of the South African riots, but they do expect rates for specific SRCC cover in the country to increase.
The London market is awash with capacity for PV cover and a huge reduction on the availability of South African SRCC cover is not expected as a result of the riots.
The riots come following a string of heavy pay-outs in the PV class, as losses from protests in Chile from October to December 2019 are estimated to have cost reinsurers between $3bn and $4bn.
The more recent Columbian riots back in April resulted in multi-hundred-million-dollar losses.
These are not isolated events and a recent Chaucer report shows increases in large protests have been notable across Europe, the Middle East and Africa.
Average annual figures for the Middle East and North Africa region increased by 229% (22 to 72 per annum), while those for sub-Saharan Africa increased by 48% (59 to 88 per annum).
The number of large protests and demonstrations globally has risen 36% since the global financial crisis in 2008-2009, from an average of 355 per year in the decade to 2009 to 482 per year in the decade following the global financial crisis.
All parties were contacted for comment.
Insurance Insider delivers global wholesale, specialty, and (re)insurance intelligence that enables you to act first. Redeem your complimentary 14-day trial for more premium content from Insurance Insider.