Welcome to Mind Matters week of 31 March 

International and local economic news

Why the SA Reserve Bank hike took the market by surprise

The South African Reserve Bank (SARB) announced a 50 basis point repo rate increase on Thursday, 30 March – 25 basis points more than the market expected.

An interest rate hike was a near-inevitable outcome given the recent rise of inflation and the Federal Reserve’s interest rate hike last week.

The article above and the one below are less than a day apart – it shows you that we can speculate but we can never be certain. 3 min read

Reserve Bank expected to hike interest rates to a 13-year high

Economists in a Bloomberg survey expect the five-member monetary policy committee to raise the key rate to 7.5% from 7.25%.

The most popular view among economists is for a unanimous decision, though some members of the panel are seen voting for a bigger move or no change. Forward-rate agreements used to speculate on borrowing costs show traders are only pricing in a 64% chance of a quarter-point hike.

3 min read.

Are South African banks at risk of their own crisis? Examining the threats – Katzenellenbogen

This article discusses the risks facing South African banks, including the possibility of a banking crisis caused by a lack of confidence in the government and the economy. It highlights the importance of effective regulation and the need to reduce the country’s budget deficit to mitigate these risks. It also discusses the potential impact of the country’s placement on a “grey list” due to money laundering and terrorist financing, as well as the risk of a collapse of the national power grid. Ultimately, the article suggests that there are increasing scenarios that could contribute to bank failure in South Africa. 8min read.

Central banks will prioritise inflation over growth

2022 was a landmark year for monetary policy. For some time, central banks had blamed rising headline inflation on a series of shocks: post-Covid supply chain issues, along with higher food and energy prices related to the war in Ukraine. These factors were seen as transient, and so policymakers felt that tightening monetary policy would not have much impact. However, it became apparent that these temporary cost increases had triggered pressures elsewhere, and that they had spread to other parts of the economy. Suddenly, inflation in services sectors was rising sharply, with wage growth being a major contributor.

Central banks acknowledged that the external shocks could no longer be looked at in isolation.

You must read this macroeconomic view of the past decade by Azad Zangana, Senior European Economist and Strategist at Schroders. Also posted under investments. 10min read.

BHP Group Seeks to Delay $44B Brazil Dam Court Case in London

The world’s biggest miner by market value is being sued by around 720,000 Brazilians over the 2015 collapse of the Fundao dam, owned by the Samarco joint venture it holds with Brazilian iron ore mining company Vale.

Should insurers be more vigilant in assessing infrastructural and climatic risk?  2min read.

Geopolitical events

Finland clears last obstacle to NATO entry in a blow to Putin

(Bloomberg) --Finland is poised to join NATO in a matter of days, bolstering Europe’s security architecture and dealing a blow to President Vladimir Putin’s stated aim to deter the defense alliance from encroaching on Russia’s border.

3min read.

Russia says Ukraine ceasefire now would not achieve Moscow’s goals

The Kremlin was reacting after Belarusian President Alexander Lukashenko - Russia's closest ally - called for an immediate ceasefire, without preconditions, and for both Moscow and Kyiv to start negotiations on a lasting peace settlement.

2min read.

Insurance and related industry highlights

Government’s SVB Intervention Saved Insurers From Significant D&O Claims

Had the federal government not stepped in to make Silicon Valley Bank (SVB) depositors whole, providers of directors and officers insurance for startups and venture capitalists — as well as financial institutions supporting these entities — would have been staring at potentially significant claims, according to commentary from AM Best.

2.5min read.

Top trends that are shaping the insurance sector in 2023 and beyond

As the world weathers a growing financial crisis, socio-political instability, the post pandemic repercussions and major weather catastrophes, the impact on clients and insurers alike has been profound. South Africa has not emerged unscathed, and a combination of both global and local events is forcing the insurance sector and insureds to relook their approach to risk management and insurance.

Before going to the article, write down three or four key trends you have observed making an impact on the industry and give an example where possible. Note the clarity of the article.  5min read.

Typhoon-Prone Philippines to Launch Insurance Plan for Infrastructure Losses

The Philippines is readying an insurance plan that will protect the Southeast Asian nation from infrastructure losses caused by natural disasters, seeking to better respond to climate change risks.

2.5min read, also posted under Climate change.

Russia Still Uses Western Insurance for Half of Tanker Fleet That Exports Its Oil

The Group of Seven and its partners in the European Union have decreed that any shipment of crude using services based in their member countries must be sold below a $60-a-barrel price cap. The measure is designed to curb the Kremlin’s energy-export revenues, limiting its ability to keep funding the invasion of Ukraine.

The sanctions system is not fool proof, but indicators show there is some impact being felt. The article mentions the International Group of P&I Clubs. They are fascinating in their cover of each other – what do we call that concept in Insurance? 2.5min read

Read more about the International Group of P&I Clubs here. Fascinating!

Group of Seven

The international Group of Seven is an intergovernmental political forum consisting of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States; additionally, the European Union is a "non-enumerated member". Wikipedia

Life insurance claims – meeting clients’ needs while managing risk

Life insurance is about balancing and managing risks. For insurers to offer clients sustainable and affordable cover, they need to price risk accurately. Through the underwriting process, clients disclose information that enables the insurer to understand a client’s health status, along with their occupational, lifestyle and financial risks. This allows the insurer to make an informed decision about whether it can afford to take on the client’s risk.

Before you read the article, list three or four instances where the insurer may ask for additional documentation for a claim to be valid. 4.5min read

Chocolate Factory Blast Highlights Combustion Risks

Last week’s fatal blast at a Pennsylvania chocolate factory highlighted the combustibility of food plants in general and chocolate making in particular.

The powerful explosion last Friday at R.M. Palmer Co. killed seven people, sent 10 to the hospital and damaged several other buildings in West Reading, a small town 60 miles (96 kilometers) northwest of Philadelphia, where the 75-year-old, family-owned company has long had a factory.

This is a very interesting read coming after the discussion above when investigating claims. 4min read.

Meeting the graduate professionals needs

Moving into the next stage of life after graduating can be a confusing time. Farzana Botha, Segment solutions manager at Sanlam Savings, says that they have found that graduates require advice or engagement with intermediaries to help them understand what is next and to help them capitalise on their earning potential and protect that earning potential in the market. The aim is to ensure that they have the right products that will help them to grow.

7min interview with Farzana Botha, segment solutions manager at Sanlam.

Investments

Includes Banking, Cryptocurrency, ESG and opinions on investing

A New Chapter of Capitalism Emerges From the Banking Crisis

The idea that finance is an arm of the state is back — and global banking is likely to be reshaped by it.

This is a very good read from Bloomberg written by well-known financial authors John Micklethwait and Adrian Wooldridge. If you do not have access to a subscription, you may find the articles below of interest.  

Who's right on banks, Warren Buffett or Terry Smith?

LONDON: Terry Smith doesn’t like banks. His recent opinion piece in the Financial Times explained why. You can read it here on his own website without a paywall.

On occasion, the Fundsmith chief has been referred to as Britain’s Warren Buffett – except the real Buffett really likes banks.

For banking and investment specialists and those in quantitative finance, this is a good debate. Read them both. The blog and article, 10min read.  

Central banks will prioritise inflation over growth

You must read this macroeconomic view of the past decade by Azad Zangana, Senior European Economist and Strategist at Schroders. Also posted under International and local economic news. 10min read.

Coronation, Allan Gray, and PSG SA equity funds compared

An analysis by Daily Investor shows that Coronation’s South African Equity Fund outperformed Allan Gray and PSG over the last five years. However, none of them beat the Satrix Top 40.

Understand the principle of investing in only JSE-listed companies and the different results that can be achieved. 3.5min read.

Absa, Standard Bank, and Sasfin implicated in Gold Mafia fraud and money laundering

An Al Jazeera investigation revealed that key officials at Absa, Standard Bank, and Sasfin Bank helped criminals launder millions of dollars of dirty cash in exchange for regular bribes.

The revelation is part of Gold Mafia, a four-part investigation by Al Jazeera’s Investigative Unit, which shows how gangs smuggle gold from Zimbabwe to launder vast amounts of money.

The article reports that the financial institutions involved are keen to unearth the truth as they have a zero tolerance for fraud and corruption. Are we going to see a change in the tide of accountability? Let the FSI lead the way. 3min read.

Fintech, digitisation and AI

Includes Insurtech, blockchain

Investment in Telematics, Embedded Insurance Will Help Carriers Compete When Auto Market Shrinks

The increasing popularity of electric vehicles (EVs), autonomous vehicles (AVs) and shared-mobility platforms will shrink the overall personal lines market 31 percent by 2035, according to a recent analysis by EY-Parthenon, but investment in more advanced telematics and embedded insurance will help carriers stay competitive.

Read the article for the main findings of the report. 2.5min read.

Consider first what embedded insurance may be by checking it out here.  

FNB’s Automated Funeral Claims Process wins Celent Model Insurer Award

FNB’s Automated Funeral Claims Process has been recognised by Celent, a global research and advisory firm for the financial services industry, as the winner of a 2023 Model Insurer Award in the Customer Experience category for its Automated Funeral Claims Process.

3.5min read.

MoyaApp makes phone repair insurance easy and affordable for the mass-market

MoyaApp, the #datafree super app with over four million users, has partnered with the Root digital insurance platform and Monitor Administrators, underwritten by Guardrisk, to make mobile repair insurance readily available to anyone. Root’s insurance platform acts as the “operating system” that made it possible for Monitor to easily expand its insurance and administrative support systems to enable the product to be embedded in MoyaApp.

3min read.

AI Leaders Urge Labs to Halt Training Models More Powerful Than ChatGPT-4

Artificial intelligence experts and industry leaders, including Elon Musk, University of California Berkeley computer science professor Stuart Russell and Apple Inc. co-founder Steve Wozniak, are calling on developers to hit the pause button on training powerful AI models.

Should governance in AI producing entities be rigorous and transparent for the protection of humanity? 3.5min read.

Judea Pearl on Cause and Effect

To say that event A causes event B is to not only make a claim about our actual world, but about other possible worlds -- in worlds where A didn't happen but everything else was the same, B would not have happened. This leads to an obvious difficulty if we want to infer causes from sets of data -- we generally only have data about the actual world. Happily, there are ways around this difficulty, and the study of causal relations is of central importance in modern social science and artificial intelligence research. Judea Pearl has been the leader of the "causal revolution," and we talk about what that means and what questions remain unanswered.

Brilliant podcast brought to us by Sean Carroll who hosts conversations with the world's most interesting thinkers. Science, society, philosophy, culture, arts, and ideas. 1hour 16min listen.

Lloyd’s Lab Selects 13 Insurtechs for Its Next Innovation Accelerator

Lloyd’s Lab received more than 200 applications from 32 countries for the 10^th cohort, which begins on April 24, 2023. Insurtechs were selected if they are offering solutions geared towards one of three themes: “European Digital and Climate Solutions,” “Data and Models,” and “New Products.”

Great to see that society’s needs are being addressed while encouraging start-ups which also have bearing on insurance. 3min read.

Diversity, equity and inclusion

Includes women in work, finance and STEM

Making mentorship and sponsorship work for women in asset management

It’s common knowledge that one of the greatest diversity challenges for South African asset managers is the inclusion of more women in key roles. Despite decades of focus and transformation effort, women remain under-represented in executive positions and in technical roles such as portfolio management and C–level executives.   

Practical advice and a good 5min read.

Successful Women Make the Best Advocates to Help Other Women Move up the Ranks

Referrals and recommendations have been shown to be helpful for women, particularly those in male-dominated professions, where women face even greater biases than the norm. However, Campbell’s study, published in the journal Academy of Management Discoveries, shows that referrals can have different effects depending on who provides them.

Interesting findings have emerged from the study. 2.5min read.

We must build safe digital spaces for women and girls, and women must write the code

In spite of their best intentions to be inclusive, men cannot view the world through a woman’s lens. Building safer digital spaces is tightly bound to having women write the code on the platforms in which victimisation is taking place.

3min read.

Climate change

Supercell Storms to Hit South More Often: Study

America will probably get more killer tornado- and hail-spawning supercells as the world warms, according to a new study that also warns the lethal storms will edge eastward to strike more frequently in the more populous Southern states, like Alabama, Mississippi and Tennessee.

Find out more about this prediction and what a supercell storm is. 5min read.

Typhoon-Prone Philippines to Launch Insurance Plan for Infrastructure Losses

The Philippines is readying an insurance plan that will protect the Southeast Asian nation from infrastructure losses caused by natural disasters, seeking to better respond to climate change risks.

2.5min read, also posted under Insurance and related industry news.

About YOU

Why do we wake around 3am and dwell on our fears and shortcomings?

When I wake at 3am or so, I’m prone to picking on myself. And I know I’m not the only one who does this. A friend of mine calls 3am thoughts “barbed-wire thinking”, because you can get caught in it.

The thoughts are often distressing and punitive. Strikingly, these concerns vaporise in the daylight, proving that the 3am thinking was completely irrational and unproductive.

4.5min read.

Three reasons to get your stress levels in check

It’s difficult not to get stressed in our fast-paced lives. Whether you’re working overtime, battling exams, or caring for a sick relative, chronic stress has become commonplace.

This article was written in 2018, BUT it is just as relevant today. 5min read.

Anxiety and the breath

There are many things to consider which may be informing your anxiety and I am not going to presume I know what they are, but I can give you some tips to change your breathing patterns and potentially your way of thinking about things which will help to alleviate it.  All of what I am saying may not refer directly to you or your situation but there may be some elements which could strike a chord.

Short essay 10min read attached below.