Published Date: 2017-06-09 | Source: Fin24 | Author: Renee Bonorchis, Bloomberg
Property and casualty insurers face an even tougher year than expected after Cape Town experienced its worst storm in 30 years and dozens of fires engulfed the region around the town of Knysna this week.
The insurers, including Santam, Old Mutual's Mutual & Federal and Rand Merchant Investment's OUTsurance unit, are already being battered by an economy that slipped into a recession in the first quarter, the country's credit rating downgrade to junk status, continued political turmoil and unemployment at a 14-year high.
"Profit will be under pressure," said Richard Hasson, an analyst at Electus Fund Managers in Cape Town.
"In a weak economic environment, such as low gross domestic product growth and increasing unemployment, claims typically pick up, which will not be good for them. The recent fires and storms will affect the companies."
The expected influx of claims may not push the bigger property and casualty insurers into losses for the year, but companies like Zurich Insurance South Africa and Auto & General Insurance may struggle, Adrian Cloete, analyst at PSG Wealth, said by phone from Cape Town.
The storm in Cape Town claimed at least eight lives, blew roofs off houses, flooded buildings, downed power lines and forced schools to close on Wednesday.
About a five-hour drive to the east, around the wealthy towns of Knysna and Plettenberg Bay, more than 26 fires broke out late on Wednesday, with "severe devastation" in at least 12 suburbs, according to local government officials.
The reinsurance programmes will help to absorb the impact, although underwriting margins are likely to contract, Cloete said.
Santam, which on May 31 said underwriting results are under pressure, dropped as much as 2.9% to its lowest level on a closing basis in almost four months. Old Mutual declined as much as 1.1% and RMI fell more than 2%.