IIG News

IIG Insights 2020 – Industry Outlook

On 12 March 2020, the IIG Council Members warmly welcomed enthusiastic members to our first Insights session for 2020 hosted at Norton Rose Fulbright. In our IIG welcoming committee we had our newly appointed President, Darryl Grater, as well as some of our other Senior Councillors & Ambassadors.

The session was emceed by the lovely Simphiwe Mtyali who eloquently welcomed our members and provided a brief description of the Insights agenda and programme outline for the morning. Our host introduced Charmaine Koch of AC Develop who then provided some background on AC develop and how to effectively utilise the IIG CPD Vault.

This session themed: Global Economic and Regulatory events was sponsored by Discovery, Marsh and Norton Rose

Our first speaker was Gert Wahl (Clients & Markets Officer at Marsh). Gert who was unfortunately unwell, but still managed to graciously deliver his presentation via Zoom. Gert leads the clients and markets strategy priority for Marsh’s Client Advisory Services.

He thanked the team for accommodating him via a technological alternative before delivering his presentation. He began by commenting on the impact of the Corona Virus and Executives facing risks in their countries. Interestingly Corona did not even exist when he originally put his presentation together, and now it’s impossible to ignore the resultant impact in various areas of business.

Some basic stats of Covid-19:

  • First reported in Wuhan China on 31 December 2019
  • Investors began worrying about Corona – 20 January 2020
  • Declared a public health emergency of international concern by the World Health Organisation (WHO) – 30 January 2020
  • As of 10 March 2020
  • 113,702 global cases reported
  • 4,012 reported deaths

The question is do we prioritise protecting ourselves from first contact or do we help prevent other people who are already infected from spreading the virus. Gert then did a comparison to other diseases and the economic impact. Some of these being, Ebola, MARS, Foot & Mouth, Zika and SARS. Covid-19 thus far has the highest impact on the global economy.

Gert categorised general Global Risks into the following:

  • Short term
  • Long term
  • Geological
  • Environmental
  • Geo-political

Short term concerns are sharply focused on environmental risks, reflecting a renewed sense or, urgency with respect to climate change. Cyber-attacks are also a major concern as it impacts on disruption of business operations and infrastructure.

He also dealt with biodiversity loss impacts as many ecosystems are in decline or at risk of extinction from human activities, risking irreversible impacts on nature and humanity. Environmental risks are also among the fastest rising concerns in terms of increased potential impact.

There is a clear divergence in priorities between executives in advanced economies and their counterparts in emerging markets. Fiscal crises joined Sub-Saharan executives’ top five concerns, which continue to be dominated by economic vulnerabilities.

Some of these top risks for businesses are:

  • Unemployment or underemployment
  • Failure of national government
  • Failure of critical infrastructure
  • Energy price shock
  • Fiscal crises

Gert ended his presentation with a few Key Takeaways:

Anticipate / Recognise / Cyber Resilience / Climate Change / Decision Making.

A short comfort break was taken by all in attendance before the second speaker presented.

Our second speaker, sponsored by Discovery, Steve Watson is the Investment Marketing Director for the Africa Client Group at Investec Asset Management. He began by reiterating that we are truly living in both extraordinary and historic times. He also used the opportunity of his introduction to announce their name change as they are demerging from Investec Group. They will now be known as: Ninety One – the company started in 1991, investing for a world of change.

Market outlook:

According to Steve, markets and currencies do not follow a logical path in the short term. Markets are forecasting mechanisms, so this in-itself, is no need to panic. In terms of South Africa, Sasol was the worst performing stock in the world and yet it still had interested buyers.

Travel and entertainment companies are experiencing worldwide disaster due to the outbreak of the Corona Virus – nobody could have predicted it and it turned out to be truly disruptive.

China is the world’s largest manufacturing country and is also the second largest importer, the fastest growing consumer market and has the largest labour force. The rate of infection inside and outside China has decreased significantly but, controlling it elsewhere in the world is now a big problem. Containment has proven to be an effective control of spread. We are living in a time of caution.

Steve also touched on the economic impact of load shedding. He emphasized that it is here to stay until at least the next two years.

However, there is slow structural reform which is to continue in 2020:

  • Corruption criminals are starting to be charged by NAP
  • Moody’s could stay on hold in March
  • Policy progress is unclear

Steve ended his presentation by pointing out that the spread of panic has been far vaster than the spread of the disease. By March 2020 there were 1.1 billion mentions in social media of Covid-19.

A few questions were then posed by the audience to Steve.

Our last speaker for the day was Patrick Bracher. Patrick has years of invaluable experience and an in-depth knowledge of insurance law (pure insurance, regulatory aspects and the commercial side), financial transactions, regulatory law and constitutional human rights law. His knowledge also embraces related financial services such as financial intermediaries and medical schemes. He advises many of South Africa’s life and non-life insurers, the South African Insurance Association and Lloyd’s of London in South Africa.

Patrick opened his discussion around the Regulatory Framework and Legislation.

Where are we and what’s coming up:

  • Conversions were scheduled to be concluded by 30 June 2020 – no converted licences yet.
  • The Prudential Authority (PA) may not extend the period for conversion under section 279 of the Financial Sector Regulation Act (FSRA)
  • Licences can now extend to regulation of the conduct of a business
  • The Suite of prudential standards came into force on 01 July 2018 whereby all reinsurance and other forms of risk transfer by Insurers must comply by 30 June 2020

He also mentioned the ongoing contention between the FIA & the Regulator on who should conduct surveys.

Retail distribution review

  • Slow implementation
  • 20% has been implemented into law
  • 9% in near final form
  • 16% has been abandoned
  • 15% in very early stages of consideration by FSCA
  • 40% in some form of consultation with specific stakeholders or the public

Intermediary Activity Segmentation – RDR Proposal J

5 broad categories of activities:

  • Advice to the customer
  • Other services to the customer
  • Services that truly “intermediate” between customer & insurer
  • Service to the insurer
  • Other services to the insurer

Patrick ended his presentation by touching on classes and sub-classes. There are 30 classes of life and 40 sub-classes on non-life insurance. Everyone must have a licence to conduct insurance business in South Africa (outsourcing without a licence is allowed) – reverse solicitation is possible.

COFI Act (Conduct of Financial Institutions) was initially proposed to come into force at the same time as the Insurance Act.

Patrick also fended a few audience questions.

Simphiwe then closed the event with gifts handed to speakers by senior council member Daphne Peter as well as gifts for a few of the audience members who raised questions

Speakers and members were then thanked for their attendance and reminded to sign out in order to qualify for their full CPD points.

Article by: Asiya Swaleh