JOHANNESBURG (S&P Global Ratings) June 6, 2024--S&P Global Ratings says that it's too early to assess the full financial and ratings impact on South Africa's insurance sector of this week's extreme weather events in the South and East regions. Heavy rainfall, floods over the parts of the Eastern Cape, and tornados in KwaZulu Natal (KZN) area experienced since June 1 in the South and East regions of South Africa led to loss of human life, damaged homes, vehicles, and public infrastructure, such as schools, roads, and health care facilities.
Negative rating actions are unlikely at this time, particularly where insurers have robust capital and liquidity buffers to absorb potential related claims. However, we expect downward pressure on earnings for the industry if the trend persists. The capital and liquidity buffers of insurance companies may also weaken in the longer run if weather-related claims coincide with challenging economic conditions, high inflation, and high unemployment in South Africa. We will continue to monitor the developments in the second half of the year, particularly as the La Niña switch is expected to fuel extreme weather in the later part of this year.
It is unclear whether the damaged homes and infrastructure were fully insured. The country has experienced an increase in weather-related events like floods, wildfires, and storms over the past two or three years. As a result, there has been a substantial increase in reinsurance costs and deductible levels for primary insurers. Primary insurers slightly decreased their reinsurance utilization in 2023, to about 30% reinsurance to gross premium written, from 32% in 2022. And, according to the South African Reserve Bank, the average combined ratio for primary insurers increased to 100.6% as of Dec. 31, 2023, from 98.2% in 2022. Some primary insurers have responded by adjusting premiums upwards. They are also focusing on geocoding to determine risks in certain areas and price accordingly. This will likely lead to a greater selection of risks and better pricing and may limit the impact of high-frequency weather-related events on underwriting profits going forward.
Related Criteria
- Insurance Industry And Country Risk Assessment: South Africa Property/Casualty, Dec. 12, 2023
- Insurers Rating Methodology, July 1, 2019
- Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013
This report does not constitute a rating action.
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| Primary Credit Analyst: | Sylvia Mhlanga, Johannesburg +27 112144800; sylvia.mhlanga@spglobal.com |
| Secondary Contact: | Tatiana Grineva, London + 44 20 7176 7061; tatiana.grineva@spglobal.com |
| Additional Contact: | Insurance Ratings EMEA; Insurance_Mailbox_EMEA@spglobal.com |
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