A new note from Cameron Cupido, CEO of Reinsurance Solutions Intermediary Services, says that there is a huge gap in the market for insurers to bring in political violence and terrorism (PVT) cover.
Cupido wrote that recent amendments from the South African Special Risks Insurance Association (SASRIA) means that insurers and reinsurers within the nation are increasingly looking to reinsurers and brokers in order place this business.
He wrote: “Previously, SASRIA extended its primary R500 million loss limit to allow for clients to purchase Excess of Loss cover up to a combined limit of R1 billion above the primary coupon (R1.5 billion combined) with regards to Material Damage, Standing Charges/Working Expenses, and Contract Works. This was done in partnership with its reinsurers in the London market.”
He added: “However, in March 2022, SASRIA reversed this decision. In a statement to its agents and intermediaries it said that following discussions with reinsurers, it had become clear that there was ‘no longer an appetite’ from its partners to continue with this facility. As a result, from 1 April 2022, SASRIA would no longer offer cover for Excess of Loss.”
This comes at a time, writes Cupido, when there has been a marked increase for this type of cover, following rioting in July 2021. Those losses, we later reported, were estimated to cause a $1bn industry loss, a sharp increase from the original estimate of $680m, with SASRIA initially paying out $386m in settlements.
He wrote: “Historically, South Africa has been one of the most competitively priced territories for PVT cover in the world. However, the years of rate erosion meant that pricing had become unsustainable. Then the July 2021 riots happened – bringing with them the largest PVT losses from a single event ever to have come out of Africa. Many reinsurers were negatively affected by the riots, resulting in a number of reinsurers pulling out of the South African PVT market.”
Despite a market hardening, writes Cupido, the demand for these products is being keenly felt.
He wrote: “While demand for PVT products in South Africa is increasing, the risk for reinsurers operating in this space is also increasing. The market is experiencing its first real hardening following a year of losses, with a notable increase in both frequency and severity compared to recent years. The impact has been widespread with a number of well-respected terrorism reinsurers struggling to renew their own PVT treaties that allow them to write this class of business. This reduction in treaty capacity has had a knock-on effect, and is directly reducing capacity in the PVT market.”
