SA’s most profitable insurer?

Regulated monopoly Sasria has enviable margins. We investigate.

Government-owned entities are often accused of being inefficient, not without reason. However, state-owned short-term insurer Sasria appears to be bucking the trend, reporting healthy profits while other, private sector companies, sometimes battle to turn a profit.

For example, Sasria’s most recent income statement, for the year ended March 31 2008, shows an after-tax profit of R290m for insurance premiums of R556m, a margin of 52%. In comparison, it took Santam (JSE:SNT) premiums of R14.2bn to make an after-tax profit of R750m last year – a margin of 5.3%. Mutual and Federal (JSE:MAF) made a loss.

Sasria has been such a cash cow for government that it paid a dividend of R10.5bn. Its investment portfolio has grown to around R2.5bn.

An apartheid era creation, Sasria was formed to provide some protection against unrest such as riots. Today, its function is the same: it provides insurance against riots, strikes, labour disturbances and terrorism.

So what’s the secret to the wide profit margin? Sasria has a legislated monopoly. In other words, other insurance companies are prohibited from providing the cover that Sasria does.

But financial director Gerhardt Matthee puts the company’s profits down to another reason: “We are this profitable because of our economy of scale, as indicated we provide national cover but only employ 35 staff members. We are able to do this due to our business model whereby most of the administration, including the distribution of policies and collection of premiums are done by our agents. For this they receive 20% commission. Our agents are all other insurance companies.”

Matthee insists Sasria is not compulsory, as some customers appear to believe, although many insurers and brokers automatically insert it into policies.

A competitive advantage for Sasria is its size. The insurer writes literally millions of policies, but many are worth only a few rand a month. Thus, it would require a specialist with nationwide presence to make these policies profitable, Matthee argues.

Sasria was started in 1979 as a non-profit entity. However, it became profit driven in 1998, when it was converted into a limited company with government as the sole shareholder. The special R10.5bn dividend was paid in 2001 and was a welcome contribution to Treasury.

According to Matthee, government had plans to privatise Sasria, but received a lukewarm reception from the private sector when shopping around. In any event, policy has since changed, and it appears that the state is keen on holding on to its insurance asset.

Government apparently views Sasria as a “strategic asset” that may be useful in providing comfort to foreigners looking to invest on our shores.

Sasria insures assets, such as buildings and assets against damage. It charges a standard fee for insurance, which suggests that those living in peaceful areas subsidise those at risk of riot and unrest. Its cover is also non-refusable. In other words, if you expect a riot in your town next month, there is nothing to stop you taking out a policy with Sasria today, even though the insurer might realise that the odds are against it.

Sasria recently raised its premiums – it says by about 20% on average – after a few years with no increases. It has had a relatively good period over the past decade, with peaceful elections. The crime problem does not affect its bottom line. Matthee says that major recent claims have come as a result of angry rail commuters, who burnt coaches as well as the Pretoria station. A risk to the company must be unrest over service delivery, which appears to be on the rise.

Write to Julius Cobbett: julius@moneyweb.co.za

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10,5 BILLION TO FLCUH DOWN THE GOV BUNG HOLE

The fact that other govt monopolies stuff it up, just shows you how bad they are.

Put a darkie in there and watch them go under.

This “insurer” provides insurance against government stuffing up big time. Some of the events against which insurance are provided are one-in-fifty-year events and there should therefore be massive reserves. The R2.5bn is far too low and the R10.5bn should probably not have been stripped out of these reserves unless the government provides the guarantees to print money if a major unrest/war event takes place. SASRIA is important – you can’t find riot insurance in the London market for SA. It makes SA more attractive for foreign investors – reduces down-side polical risks.

Profitable as they are, they still find any excuse under the sun not to pay….i.e it was not declared a riot at the time your shop was burnt to the ground! I know this it happened to me in 1994..

The bottom line is that Sasria is the only insurer in SA for political riot, riot, civil commotion, etc. They are a monopoly … and I think they will happily acknowledge it.

But … if they were running deep in the red, would that not be a poort indicator of the country? The LR indicates the state of the nation and if they were unprofitable, then the country would be close to meltdown.

Perhaps this is the lesser of 2 evils?

End of comments.

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