Hail batters SA insurers’ outlook

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HailInsurance1

Independent Newspapers.

Photo: Matthew Jordaan.

Johannesburg - Angela Dike was showing clients how to make duck red curry and chocolate spring rolls in her Thai cooking class when hail stones as big as golf balls started slamming into the 18 cars parked outside.

Windscreens and headlights were smashed and cars’ body work were dented across Gauteng in the late afternoon of November 28.

Dike, 37, said the hail stones were so big no one dared to run out to move the cars.

“One woman was in tears because she’d just bought a brand new BMW,” said Dike, whose cookery school Taste-Buds specialises in corporate team-building events.

“Everyone was really miserable. I felt terrible.”

So did property and casualty insurers such as Santam, Old Mutual’s unit Mutual & Federal and Absa Insurance, which is part of Barclays Africa.

The hail storm resulted in claims of more than 2 billion rand according to Dewald van den Berg, a Johannesburg-based director at PricewaterhouseCoopers’s financial services practice.

“They say these kinds of storms are one-in-20 year events, but now we’ve had two in two years,” Van den Berg said in a June 25 phone interview.

“If it happens again this year, it will hurt the bottom line of our short-term insurers.”

Gauteng’s summer rains typically start in October, lasting until March or April, and are characterised by late afternoon thunderstorms that frequently involve lightning and sometimes bring hail.

 

Weather Forecast

 

While the South African Weather Service can predict a large storm two days before it hits, radar can only pick up hail stones in the clouds 30 minutes or so before they drop to earth, according to Cobus Olivier, a scientist at the organisation, said by phone yesterday from Pretoria.

South Africa’s biggest so-called short-term insurers typically provide cover for items from cars and household goods to crops and buildings.

In 2013 the earnings of the five largest short-term insurers dropped 12 percent on average partly due to weather-related claims, according to PwC research.

It was the second year in a row that the weather impacted profit.

In 2012 Gauteng recorded a storm that travelled 150 kilometres while dumping balls of ice that averaged four centimetres in width.

Last year the storm that battered the cars outside of Dike’s kitchen radiated out from where it began to travel along a 350-kilometre path and produced stones that averaged 5 centimetres in width.

 

Cost Recovery

 

“A third year would put pressure on the profitability of re-insurers and hence impact the price of cover in the next year,” Rudolf Britz, an actuary at Momentum short-term insurance, said in an e-mailed response to questions.

“Premiums may differ more than expected from one year to the next as insurers try to recover some of the costs.”

Hail damage is costly for insurers in many parts of the world and puts pressure on the re-insurers that underwrite the risks.

Munich Re, the world’s biggest re-insurer, said in January that claims from natural catastrophes including floods and hailstorms totalled about $125 billion last year.

Germany suffered three hailstorms in 2013 that damaged 450,000 vehicles and caused losses at its car insurers.

The losses for South African insurers could have been worse -- most South Africans don’t have insurance for their belongings. Unemployment amounts to one in every four adults and gross domestic product per capita was $6,618 in 2013, according to the World Bank, compared with $53,143 in the US.

 

Changing Patterns

 

“With the changing weather patterns seen globally we expect similar events in the future,” Jacques Pretorius managing director of Barclays Africa Group Ltd.’s non-life insurance unit.

Fitch Ratings said in a report in February South African non-life insurers’ 2013 underwriting profits would be negatively affected by significant claims related to natural catastrophe events.

“However, earnings have strongly benefited from rising equity markets, partially offsetting the subdued underwriting performance,” Fitch in the report.

Equity markets have continued to rise since then, with the FTSE/JSE Africa All Share Index gaining 10 percent this year.

Santam has risen 9.5 percent to 203.88 rand this year after dropping 3.2 percent in November and December last year as Gauteng’s thunderstorms continued.

“We’re impacted by a number of significant risk issues such as a weak exchange rate, floods and fires,” said Donald Kau, a spokesman at Santam, South Africa’s biggest short-term insurer.

“A great deal of attention is focused on making sure that we’re in a position to ride out such events, absorb their impact and still pay our claims.”

 

Weather Risk

 

Non-life insurers in South Africa would struggle to get out of taking weather-sensitive risks, according to PwC.

Motor insurance makes up about 45 percent of the market and insuring property in some form is unavoidable, according to Van Den Berg.

Telematics can help, he said.

Sending clients text messages about impending bad weather reduces claims.

The Barclays Africa unit tries to reduce risk by working with the South African Weather Service to provide clients with storm warnings and staying in close contact with service providers such as assessors, tow trucks and body shops, Pretorius said.

Dike’s car, a gun-metal grey Kia Sportage, still bears the pock marks on its roof and hood from last year’s storm.

“I don’t have car hire in my insurance policy so it’s inconvenient to not have a car while it gets panel beaten,” she said.

“My car looks like I parked it a little too close to the bottom end of a driving range.” - Bloomberg News


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