Two-pot has upended the retirement fund industry forever. We look at some of the misconceptions still baffling consumers, as well as some interesting new products available.
Pg 12-15
Like it or not, cryptocurrency is on the rise, and advisers can’t afford to be left behind. We take a look at the latest happenings in the industry, including regulations, rules and investment opportunities.
Pg 16-23
INCOME PROTECTION
Income protection is often undervalued in a person’s insurance portfolio. It’s a safety net that offers peace of mind, allowing individuals to focus on recovery without financial stress. We look at some claims stats from the past year.
Pg 24-25
The changing nature of financial advice
What’s keeping financial advisers up at night? At a recent Morningstar Conference, Stephanie Ferreira, Financial Planning Specialist at Chartered Wealth Solutions, Bronson Friedman, founder and Managing Director at Legacy Family Wealth, and Quinton Ralph, Managing Director, founder and Private Wealth Manager at Resolute Wealth Management, gave their views on surviving in a tough climate, and discussed the main challenges and opportunities facing the industry today.
Is now a good time to be a financial adviser?
Ralph: There are lots of opportunities for financial advisers, but I think the challenge is, from a South African perspective, how do we get more people to save money? Most of us are managing a lot of old money, but how are we going to get the younger generation and the greater population to start saving? We’re probably going to end up with more, but smaller, clients but that takes up time and will be a cost for the future.
Ferreira: I think it’s currently a more difficult environment because as financial planners we must have knowledge in so many different areas, whether it’s tax or offshore. It’s not just about investing a client’s money anymore. However, there’s an incredible amount of opportunity, especially for the younger FAs, because of the transfer of wealth to people that sit in similar age groups.
Friedman: It’s not an easy environment to operate in. If we look at compliance alone, the burden put on small practices is becoming astronomical. There’s now IT infrastructure coming into play, so what’s happening is we’ve had to employ more staff, including internal and external compliance officers. It’s become more expensive to run a practice. There’s also a consolidation of IFA practices, and I think that’s a big threat to the true IFA industry. The bigger corporates are growing, and as we’re trying to remain an independent practice, we can’t pay the same multiples. However, if independence is important to a client, that’s what we’re trying to focus on.
How do you manage intergenerational wealth and succession?
Ferreira: With more families becoming global citizens, the complexities around offshore products and tax are growing. These dynamics make offshore products and tax considerations more intricate, as families navigate financial planning across multiple jurisdictions. We’ve got a sister company in Mauritius and technically the equivalent of an advice business there. That helps us to leverage skills and intellectual capital. Internally, we’ve also got a tax business and we have our own product committee, and their primary job is to understand exactly what products are out there because that space is also changing hugely.
Friedman: We are a younger business, so we spend a lot of time with not just parents but their children at the same time. We are trying to build a generational strategy. The difficulty is that many of these children are studying overseas and it’s not easy to get everyone together. We’ve tried to focus on creating a structure with an unlimited lifespan. If clients utilise offshore trusts, for example, it makes that conversation a little easier. Ultimately, we’re dealing with the trustees and not the kids or parents.
Be con dent that your clients are ready for the
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Ralph: When you’re dealing with younger clients, you have to service them differently versus the 60 to 80 category. You’ve got to think about that because a client in category C is not going to resonate with what you’re doing in category D.
What impact has using a DFM had on your business?
Friedman: When we started out, our book was quite small in terms of number of clients and assets and it was easier to manage, but that’s not a sustainable or scalable solution. My advice would be to go with a DFM sooner rather than later. It’s a bit of a process, but in terms of the efficiency and the professionalism it’s brought to the business, I can’t imagine not utilising a DFM. Ferreira: The value for us is that it allows us to do what we do best, which is connecting with our clients.
Ralph: For us, it was a complete game changer. Everybody wants to manage a big book, but you don’t always land large clients and end up with a lot of clients. How do you ultimately give clients the same outcome? Going back 27 years, you could pick a handful of funds, and you did well. Now there are so many funds. How can a financial adviser manage a couple of hundred clients? Are you able to get every client the same sort of outcome? Using a DFM, we’ve been able to deliver consistently above-average returns and at lower cost. Most advisers are certified financial planners, not analysts.
How is AI impacting your business?
Ferreira: I asked AI this question. The answer is that it’s on our side as financial planners. It’s an incredible opportunity for our businesses to become scalable and to use AI on the things that we can build efficiencies over, the things we have control over, creating capacity for us to focus on the human elements. We must continue to give our clients that sense of belonging, make sure they feel supported, and spend as much time as possible being client-facing.
Friedman: I don’t see it as a threat, but as a tool we can use to create more business efficiencies. Hopefully we will see more implementation of AI software going forward.
Ralph: The challenge for smaller practices is having the resources to manage AI effectively. Typically, we’ll lean on business partners to help bring this technology into our businesses and assist with practice management.
What are your views on Bitcoin?
Ralph: You can’t offer everything to everybody. We decided some time ago that it’s not part of our offering. We say to clients that we’re not in a position to give them advice on that.
Ferreira: Crypto still feels a little bit like gambling, but I’ve also read very interesting studies that show how well it creates a diversification against other traditional asset classes. I think it does have a place in our clients’ lives. We go as far as assisting and guiding clients who are trying to dabble a little bit in crypto – as long as they’re using money they can afford to lose and are using a safe and secure platform.
What’s your differentiator for the next 10 years?
Friedman: Being a slightly younger business, we’re trying to create a more global practice and are looking at licencing opportunities in Mauritius. This will allow us to have better conversations with our international clients. Ferreira: Our key differentiator is our holistic planning process because it really beds down our client relationships. Outside of that, key focus areas over the next five years will be AI and tech, as well as the offshore space. Ralph: If I was a younger adviser, I’d be quite concerned. How are you going to build up traction and deliver? When I founded Resolute Wealth 20 years ago, I opted to charge no initial fees on any investment business. That was a game changer. It was difficult but it allowed us to do something different, because in those days everybody was earning upfront fees. Going forward, we’ll be embracing technology, focusing on the performance of our portfolios and nurturing relationships. If you want your practice to continue, you’re going to have to find a way to take on young talent and introduce them into your existing relationships.
While cryptocurrency appears to be here to stay, many financial advisers remain hesitant to engage with it. However, as younger investors increasingly demand its inclusion in their portfolios, staying informed becomes crucial. Our cryptocurrency special in this issue will keep you updated on the latest industry trends, as things continue to evolve rapidly.
Regulation of the currency is gaining widespread acceptance among both the local industry and investors. While some bad actors may prefer crypto to remain in the shadows, regulation is key to fostering trust and transparency. For an in-depth look at its darker uses, check out Kill List, a Wondery podcast exploring what cryptocurrency is being used for on the dark web.
MoneyMarketing is excited to announce that we’ve joined TikTok! While we remain a dedicated B2B platform, we see TikTok as a valuable tool for promoting the role of financial advisers.
TikTok has evolved into a platform with more serious content and an older, engaged audience. There’s even a dedicated community known as ‘FinTok’, where users dive deep into financial topics. According to an article in Creative Review, there’s been an overall 373% rise in financial content on the app over the last year. The platform says that 70% of its users have indicated that financial topics are important to them, while more than 80% of users are taking action based on TikTok finance advice.
Our presence on TikTok will help us remain relevant. If you haven’t joined yet, now’s a great time – and you may find yourself exploring some fascinating content. Go to @moneymarketing_sa! Stay financially savvy,
Sandy Welch Editor, MoneyMarketing
@MoneyMarketingSA
www.moneymarketing.co.za
@MMMagza
Leigh Kohler Head: INN8 Invest DFM
How did you get involved in financial services –was it something you always wanted to do?
In retrospect, I didn’t always want to get into financial services but not because I had ambitions to do something else. All I knew when I left university was that I needed a job. I was a 22-year-old job seeker, desperate for work, and frequented the internet café daily to send my CV to any company with an email address. One day, I noted the name of a business on my way to the shopping centre – and sent my CV to them. While I had been rejected twice for a call centre and then an operations consultant role, I remained persistent. After months of knocking on the door of this one company in particular, my persistence paid off when my application for an admin assistant role was successful. The job was to post letters. The company was Glacier. This was the first step in building a career in financial services.
What was your first investment –and do you still have it?
While I didn’t know it at the time, my first investment was the purchase of an X-Men comic book when I was a kid. Yes, I still have it, and yes, it’s worth a lot more now. However, my actual first deliberate investment, like most, was a property purchase. I bought a small apartment in Strand, Cape Town, during the property boom in the early to mid-2000s. It was a direct purchase from the developer and, unfortunately, I didn’t do the necessary research on the area the property was in. This had negative implications, and I ended up selling it for less than what I’d paid for it. Take-aways from that experience: Do your homework and be patient. I’ve made more liquid investments after that debacle and did well from there.
What have been your best – and worst –financial moments?
It’s difficult to pinpoint any particular event as the best moment. However, the best part of my journey so far is being able to work with incredible people, better understand and navigate the complex world of investments and asset management, and genuinely trying to make our industry a better place. I love knowing that I have contributed to making a small and positive difference to our industry and its people.
Some of the worst events include large black swan events like the GFC (2008), Steinhoff event, and the pandemic. The
chaos of these events causes fear and, often, irrational behaviour. Of course, it’s only with the benefit of hindsight (and experience) that we learn to keep calm during these times.
What are some of the biggest lessons you have learnt in and about the finance industry?
• Hard work does pay off. Forget quick wins and immediate gratification. Keep your head up when you need to, put your head down when you need to.
• Be kind. I work with people. It’s amazing what you can accomplish if you’re just kind and give a smile to others occasionally (in my case, I try to keep smiling as much as I can).
• Markets are tough. If you think you’ve seen it all – you haven’t learnt your lesson yet.
• Find a reason for what you do. Find a reason to love what you do – beyond investment performance and making money. I didn’t grow up with wealth, I’m from the Cape Flats and I’ve seen the impact of people not saving and investing for their futures, especially retirement. So, the reason I do what I do is to help people make better decisions, live a good life and retire with dignity.
“I love knowing that I have contributed to making a small and positive difference to our industry and its people”
What makes a good investment in today’s economic environment?
Do the basics right. Diversify your investments across major asset classes (and even to alternative asset classes if possible). There are no silver bullets when it comes to making good investment decisions. Expose yourself to growth assets for longterm growth and ensure you have sufficient liquidity to take advantage of opportunities that present themselves when you least expect them to.
What finance/investment trends and macroeconomic realities are currently on your watchlist?
We’re watching the global megatrends and super themes such as information and technology disruption (innovation and AI);
infrastructure; energy transition; China and India. Of course, we’re also quite positive on South Africa. We think there’s still value in our market and we’re hoping our clients benefit from our exposure to SA, as well as skilled global asset managers taking advantage of the global super themes.
What are some of the best books on finance/investing that you’ve ever read?
Those that spring to mind are books like Boom and Bust by Quinn and Turner (Global History of Financial Bubbles); The End of Money by Buckham, Wilkinson and Straeuli; and The World for Sale by Blas and Farchy. The books that I’ve really enjoyed, that are not directly finance related include:
Shoe Dog: A Memoir by the Creator of Nike – this is a fascinating story of sheer determination, hard work and creativity
The Ride of a Lifetime (Robert Iger) – the story of the Disney CEO and how he built what is Disney today, including the purchase of the Star Wars and Marvel franchises, as well as the Pixar business
A cautionary tale called Black Edge by Sheela Kolhatkar. It’s the story of Steve Cohen, an (in)famous hedge fund manager and how he built his business through insider information and dirty money.
Definitely a ‘what-not-to-do’ story.
By Francois du Toit CFP® PROpulsion
Prepare your business for 2025
As we approach the final months of the year, it’s time to start thinking about how we want our financial planning businesses to look and operate in 2025. While it may seem early, taking the time now to reflect and plan can make a significant difference in how we approach the challenges and opportunities of the coming year.
In this article, I’ll explore four essential areas that can help you futureproof your business: personal development, business strategy, team development, and technology. Each of these areas is critical to not only surviving but thriving in 2025.
1. Personal development: The heart of growth
Your business reflects you. The more you grow personally, the more your business will grow. One area that’s crucial for development is emotional intelligence. As financial planners, we are dealing with clients’ emotions, fears and dreams. By understanding our emotions and managing them effectively, we can better connect with clients, build stronger relationships, and navigate difficult conversations.
Another key focus is adaptability and agility. The pace of change is accelerating, whether it’s technology, client expectations, or market conditions. Staying adaptable and questioning whether what you’re doing is still relevant will ensure you remain on the cutting edge.
Lastly, client communication and engagement are essential skills that never go out of style. Whether faceto-face or through technology, being able to engage meaningfully with clients is one of the greatest assets you can have. It builds trust, strengthens relationships, and keeps clients loyal.
2. Business strategy: Building sustainability and longevity
Having a well-thought-out business strategy is nonnegotiable in today’s environment. At the core of this
is being client-centric. Ask yourself: Is your business truly putting the client’s needs and goals first? It’s not enough to offer the best products; it’s about helping clients achieve their life goals and making their dreams a reality. That’s the real value you bring to the table.
Next is sustainability and longevity, which are closely tied to building recurring revenue streams. The more recurring revenue you can generate, the more stable and predictable your business will be. This requires a long-term mindset, but once established, it creates a solid foundation for future growth.
Finally, specialisation and niche marketing can help differentiate your business. It’s about being clear on who you serve and what you offer. Don’t try to be everything to everyone. Instead, focus on your strengths and build your reputation as the go-to expert in a specific area.
3. Team development: Your secret weapon
Your team is one of the most powerful levers you have for growth. Investing in their development not only improves their skills but also increases their commitment to your business. Take time to identify where they need support and provide opportunities for training and growth.
Diversity and inclusion are also critical to building a well-rounded team. Bringing in different perspectives and experiences can spark innovation and help you better serve a wider range of clients.
Lastly, think about your work environment. Whether it’s hybrid, remote, or in-office, make sure it aligns with your team’s needs and supports your business goals. Each model has its advantages, and what works best will depend on your specific situation.
4. Technology: Staying ahead of the curve
Technology has rapidly transformed the financial planning profession, and it’s only going to continue. AI and automation can help streamline processes and free up time for more valuable client interactions. While it may take time to set up and refine these systems, the long-term benefits are undeniable.
Client experience technology is another area to focus on. Whether it’s personalised communication or client portals, think about how technology can enhance the experience you offer to clients. But remember, always start by asking what your clients really need before investing in a shiny new tool.
Lastly, cybersecurity is a growing concern for both businesses and clients. As financial advisers, it’s our responsibility to ensure that sensitive client data is protected. Make cybersecurity training a priority for yourself, your team, and your clients to stay ahead of potential threats.
Preparing your financial planning business for 2025 requires a balanced approach. By focusing on personal development, refining your business strategy, investing in your team, and embracing technology, you’ll be wellpositioned for success in the coming year. Start the process now, while the challenges and triumphs of 2024 are still fresh in your mind. Planning early will give you the clarity and confidence to move forward with purpose and vision, ensuring that 2025 is your best year yet.
For more insights and details, I recommend watching the full episode of PROpulsion LIVE. There is more to be gained!
Stay curious and raise the bar!
Francois du Toit created PROpulsion, a dynamic network for financial planners and advisers promoting growth and success. He presents the weekly PROpulsion LIVE show on YouTube, with over 270 episodes delivered, leveraging his 25 years of expertise while hosting guests both domestic and international to educate and motivate. Dedicated to learning and applying new tech, he aims to make a large-scale impact. For further details, go to www.propulsion.co.za.
By Jason Swartz Portfolio Manager at Old Mutual Investment Group
JSE-listed equities have been on a ‘tear’ recently as positive domestic news flows and local investor sentiment push share prices higher; yet it will take renewed foreign investor interest to push local equities back up to more sustained levels. And foreign investors are still taking a wait-and-see approach to local markets.
South Africa is currently experiencing an underwhelming show of foreign confidence in our stock markets as foreign investors are still exiting the market, with around R95bn leaving the country year-to-date (to week ending 6 September 2024). This is also despite local equities having weathered recent global market upheavals better than many of its peers.
For the pendulum to truly shift on foreign investor sentiment, they will need to see more movement around improved performance from stateowned enterprises (SOEs), alongside a stable centrist GNU, and sound policymaking, which would unlock value in local financial markets.
JSE needs renewed foreign investor sentiment
A tale of two markets
As the final quarter of 2024 looms, domestic financial markets seem to be caught between two forces. On one front, investors have found hope in the South Africa Inc story thanks to a 175-day-long, and counting, hiatus in Eskom’s loadshedding intervention, and a mostly positive political outcome following the 2024 National Elections. This upbeat sentiment has been reinforced by some local asset managers reining in some of their offshore exposure in favour of onshore exposure due to concerns of heightened global risks, and excessive valuations.
Equities in the United States (US) and other developed markets experienced a tumultuous July and August 2024 as markets processed several weakerthan-expected data points. One of the biggest concerns centres on the global ‘soft landing’ narrative and the increasing likelihood that the US will enter recession. These fears have recently hit the global markets again in the first week of September.
The Sham rule, which is a strong historic predictor of US economic downturn, is sending serious warning signals. And while it is difficult to forecast US recessions with high conviction, recent labour market data and the unwinding of
“The good news for local investors is that both bond and equity markets – and the rand – are showing resilience in the face of recent global market turmoil”
EARN YOUR CPD POINTS
US household balance sheets suggest the risk is high. Whether we see a true recession, or a deep or shallow slowdown, remains to be seen. For SA-focused managers, the best protection against such scenarios is to position cautiously. Why? Because recession and ‘risk off’ are not good for South African asset classes.
Resilience in the face of global turmoil
The good news for local investors is that both bond and equity markets – and the rand – are showing resilience in the face of recent global market turmoil. There are also a few ‘tailwinds’ that could insulate domestic asset classes from recession, including the upside risk of higher trend GDP growth outlook, the potential for interest rate cuts, and strong turnarounds at SOEs like Eskom and Transnet.
If these improvements persist, South Africa could once again find a place in global investors’ emerging market portfolios. Local financial markets also have the potential to shrug off the ‘liquid proxy for emerging markets’ tag and emerge as a good growth story in their own right – we must play a different role to the likes of Brazil, China and other emerging market peers.
Another big question mark looming over allocators of capital is the outcome of the November 2024 US Presidential Elections. These elections are notoriously unpredictable, and a few thousand votes could swing the outcome in favour of Harris or Trump – taking the world down two very different paths.
At a basic level, a Trump victory leads back to an ‘America first’ policy, including domestic deregulation, global trade tariffs,
and tax cuts, to name a few. It is challenging for asset managers to determine what this basket of factors would mean for the US dollar. If Harris wins, we expect higher taxes and a resulting squeeze on US corporate markets, offset by an improved global market. The only certainty is that whoever wins, the US will have to begin contemplating fiscal constraint to rein in its burgeoning debt-to-GDP ratio, forecast to hit 122% soon.
When Biden was in the race, our base case was for a narrow Trump victory; but with Harris our base case has shifted to ‘too close to call’.
Local allocators of capital are at capacity in South African asset classes and are already heavily invested in local nominal bonds and equities. Within the dual context of regulation 28 and local fund managers’ value bias, SA investors are unlikely to maintain local asset classes at pre-Covid heights based on local improving sentiment alone. The game changer is for improving foreign investor sentiment and their return to domestic markets. We need foreigners to step back in to introduce the levels of liquidity necessary to take the JSE to the next level.
Despite the recent rerating, South African assets remain undervalued. It is hoped that improved investor sentiment will unlock more value in asset classes through the final quarter of 2024; however, this value unlock will also depend hugely on clear signs of local economic reform. OMIG portfolios are currently overweight South African equities and local bonds, reflecting our optimism about the shortterm risk-return improvements stemming from the political landscape.
The FPI recognises the quality of the content of MoneyMarketing’s November 2024 issue and would like to reward its professional members with 2 verifiable CPD points/hours for reading the publication and gaining knowledge on relevant topics. For more information, visit our website at www.moneymarketing.co.za
Why smart investors use hedge funds
By Kim Zietsman CFA, Head: SA Business Development and Marketing, Laurium Capital
We so often hear the timeless adage “Don’t put all your eggs in one basket”, or the famous quote by Harry Markowitz, the inventor of modern portfolio theory, “Diversification is the only free lunch in investing”.
These quotes seem simple enough to explain that holding a broader range of assets can result in better returns without assuming more risk. However, the sheer number of Discretionary Fund Managers (DFMS), institutional consultants, multi-managers, portfolio managers and other allocators of capital employed in our investment industry would suggest that this is quite difficult to achieve in practice – with as many variations as there are industry players of how best to create an optimal portfolio.
The concept of diversification is vital for investors to grasp. The future is unpredictable, and markets are therefore hard to foresee with any degree of certainty. Different categories of investments respond to changing economic and political conditions in different ways. By including different asset classes in your portfolio, you increase the probability that some of your investments will provide satisfactory returns even if others are flat or losing value. How investments move in relation to each other is all about correlation, which describes the extent to which securities or asset classes rise and fall together. The best diversifiers in a portfolio are those securities or investments that are less or even negatively correlated.
It is quite surprising, therefore, that hedge funds in South Africa, given their low and negative correlations to traditional asset classes (equities, bonds, and cash) are so underutilised. The ASISA Collective Investment Scheme (unit trust) industry is R3.6tn strong, yet hedge funds with AUM of R151bn make up less than 4% of industry assets!* The correlation matrix below shows how Laurium’s conservative Market Neutral Prescient RI Hedge Fund has a negative correlation to cash, and a low correlation to SA Bonds and SA Equity. SA Bonds, in fact, have a higher correlation to SA Equity than the Market Neutral Fund.
Source: Laurium, Morningstar, 1 Dec 2016 to 30 September 2024
This contrasts starkly with popular large balance fund peers, which are highly correlated with each other (typically around 0.90) and the market (typically 0.80 and above).
Source: Laurium, Morningstar, 1 Dec 2016 to 30 September 2024
Not only do hedge funds have a low or negative correlation to other asset classes, but within the hedge fund industry, many of the funds have very low correlations to each other, due to the unique way that hedge fund managers derive alpha though leverage, net exposure, as well as their long and short book. Quite simply, the broader the toolbox of potential instruments one can use, the less likely that two funds will look alike. Unlike long only funds, which are limited by mandate, regulation or asset class, hedge funds have far fewer constraints and hence can look and behave very differently. This means that combining some of the top managers’ hedge funds should make sense. In the matrix below, we have used some of the leading funds in the industry that have the longest track records.
Source: Laurium, Morningstar, 1 July 2011 to 30 September 2024
If the above figures are not convincing enough, perhaps one should consider how the smart money is invested. Arguably, the largest university endowment funds are run by the best investment brains in the world. A university endowment portfolio features many types of investments, with the overall goal of maximising returns while limiting risk. Alternative assets are an important reason why endowments have done so well. These funds have a significant allocation to hedge funds, as indicated in the graph below.
Figure 2: Correlation Matrix – Laurium
Figure 3: Corelation Matrix - The 5
Figure 4: USA Ivy League Universities Endowment Funds – Hedge Fund Allocations
By Ali Simpkins Head of proposition at Curate Investments
Balanced funds: Pillars of investment portfolios
Balanced funds are an essential tool for investors aiming to navigate the complexities of modern markets.
Combining equities, fixed income and property, these multi-asset funds provide a diversified approach that appeals to those seeking both capital growth and income. Investors globally use these multi-asset funds as core portfolio holdings because they can take advantage of opportunities across asset classes within a single fund or product. An example is the Curate Momentum Balanced Fund from Curate Investments, South Africa’s newest global asset manager, designed to generate returns well above inflation over time.
Trends shaping balanced funds
Recent regulatory changes in South Africa have given balanced funds greater flexibility to tap into global markets. In February 2022, the South African Reserve Bank raised the offshore investment limits, allowing managers to further diversify internationally and access a wider range of growth opportunities. Visio Fund Management, Curate’s handpicked manager for the Curate Momentum Balanced Fund, has a holistic approach to portfolio management, which ensures that they use the opportunity to maximise the increased global allowances when optimal.
By considering both local and offshore investments as part of a unified strategy, Visio can make more informed decisions, optimising overall performance for clients.
As regulation evolves, it is believed that hedge funds will play a larger role in multi-asset portfolio construction, giving investors access to their downside protection and low correlation diversification benefits. Visio’s hedge fund background gives them an edge in positioning the Curate Momentum Balanced Fund for future success.
Laying the foundation for the future
Visio’s established background in hedge fund management and their level of risk management expertise sets them apart because they are fundamentally trained to identify risks and avoid or hedge them. One of their primary goals is to protect against permanent capital loss.
A cornerstone of Visio’s investment philosophy is rigorous, fundamental research. They often identify opportunities that are undervalued or overlooked by the broader market. This approach allows Visio to purchase assets at attractive prices, positioning the Curate Momentum Balanced Fund to outperform in different market scenarios.
While a conservative, value-driven fundamental investment approach may lead to neutrality during market rallies, the focus remains on long-term capital preservation and risk-adjusted returns, ensuring that the Curate Momentum Balanced Fund remains
New appointments
Schroders makes Board changes
Schroders plc has appointed two Executive Directors to the Board effective from 1 January 2025, subject to regulatory approval. Meagen Burnett will be appointed Chief Financial Officer (CFO), succeeding Richard Oldfield who was named Group Chief Executive earlier this month. Johanna Kyrklund will also join the Board as Group Chief Investment Officer (CIO). Kyrklund’s elevation to the Board underscores the importance of investment expertise and performance to the business and our clients. Oldfield will succeed Peter Harrison as Group Chief Executive on 8 November 2024, subject to regulatory approval. Burnett will act as interim CFO from 8 November 2024, until her formal appointment on 1 January 2025.
New Head of Strategy for Prescient Fund Services
Niki Giles has rejoined Prescient Fund Services as Head of Strategy. With over 25 years of experience in financial services, Giles brings an impressive track record in governance, compliance, risk management and financial operations. Her strategic expertise will be integral as Prescient Fund Services, the Prescient Group’s fund services business, continues to expand its global footprint and strengthen its offering. In her new role,
Giles will oversee the development and implementation of strategic initiatives aimed at enhancing Prescient Fund Service’s service offerings and operational efficiency.
Lethu Zulu returns to Sanlam
Sanlam Investments Multi-Manager has appointed Lethu Zulu as Head of Hedge Funds effective 1 October 2024. In this role, Zulu will oversee both local and global hedge funds, managing all aspects of the asset class. He is returning to Sanlam Investments Multi-Manager, having previously worked with the firm from February 2016 to November 2021.
New Senior Partner for Webber Wentzel
After almost a decade of leading Webber Wentzel as Senior Partner, Christo Els’s term is ending. Gareth Driver has been elected as the firm’s next Senior Partner, set to take office on 1 March 2025. Elected by the partnership in 2015 and re-elected for a second term in 2020, Els has served two successful terms as Senior Partner. Driver is also widely recognised as one of South Africa’s leading dealmakers. With a distinguished track record of over 30 years leading high-profile Corporate/M&A transactions on the continent, he is lauded for his public M&A and corporate finance credentials, as well as his lead role on major unlisted deals in South Africa and the rest of Africa.
well-positioned for sustained growth over time to achieve its CPI + 5% return target.
Grounded in disciplined processes
Visio adopts a predominantly bottom-up approach to portfolio construction, focusing on sectors and themes that they believe will drive long-term value. Visio targets companies with strong management teams, good governance, robust balance sheets, and sustainable cashflows, investing in them only when their valuations are favourable.
Visio also integrates a top-down macroeconomic overlay, allowing them to adjust their positioning based on broader macro and market conditions and trends. This combined strategy gives Visio the flexibility to navigate changing market environments while remaining anchored in sound fundamental research.
Visio Fund Management offers a tailored investment strategy for the Curate Momentum Balanced Fund. The approach positions us to support our clients in achieving their financial objectives, even as market conditions evolve.
About Curate Investments
Curate launched on 1 August with a unique range of unit trust funds. All of Curate’s funds are managed by different teams of highly skilled people who are handpicked as the best managers for each strategy. Learn more about Curate at curate.co.za
Lethu Zulu
Meagen Burnett, Johanna Kyrklund, Richard Oldfield
Christo Els Gareth Driver
Niki Giles
By Rigitte van Zyl Executive: FundsAtWork and Group Insurance, Momentum Corporate
We put your funds to work
For nearly 25 years, the FundsAtWork
Umbrella Funds have been a disruptive force in the employee benefits industry. Now, driven by Momentum Group’s purpose – to build and protect our clients’ financial dreams – we stand at a pivotal moment in our evolution. We know that retirement savings represent perhaps the largest savings that the average employed person will accumulate in their lifetime, and in most cases, the insurance benefits provided by their employer are the only ones they have. In this context, the financial dreams for our families, our businesses and communities take on a new meaning. This reality has inspired us to reimagine the employee benefits experience to ensure it is accessible to all employed people in South Africa, from a large established corporate to a growing MSME. It has supercharged us to be a digitally led umbrella fund, providing members with the flexibility to make choices based on their individual needs.
“This reality has inspired us to reimagine the employee benefits experience, to ensure it is accessible to all employed people”
The refreshed FundsAtWork offering is the building blocks of successful retirement journeys for members
The building blocks of our offering enables clients to consult and configure based on foundational structures:
• Core benefits that include employer choice, member voluntary choice, member value-added services, and event-based product choices.
• Digital enablement: A choice of digital engagement channels and a product shop that enables individualisation.
In creating access for MSMEs, we have developed Momentum Grow. This is the solution designed for organisations with an employee base of between 50 and 200, which provides access to the core benefits of FundsAtWork and is easily accessible through a Smart Quotes mobile feature.
These core benefits in FundsAtWork include five flagship elements:
1. Investment choice
We allow member investment choice and there is no restriction on when or how often a member may switch. We always recommend that members speak to a financial adviser before making investment decisions. We have taken this a step forward with the two-pot system by giving members the opportunity to either keep their savings component invested in the same portfolio(s) as the rest of their retirement savings or move it to a conservative portfolio with lower market volatility.
2. The Family Protector
A flagship benefit that protects members and their families when the member passes away, by providing education and funeral benefits, all wrapped into one, at an extremely competitive cost.
3. Pension-backed home loans
We understand how important owning a home is, and for many people, buying a home is also the biggest investment they will ever make. For this reason, we offer pension-backed home loans to our FundsAtWork members. It provides them with the money they need to buy a home or land to build a house, improve an existing home, or pay off another housing loan with attractive lending rates, and many other home-related features.
4. Member value-added services
All members and their families have confidential access to our digital and telephonic Employee Assistance Programme, which provides them with professional support to help improve their physical, financial, and emotional wellbeing. Our value-added services include multiple life-event-based offers like TaxTim, Hello Doctor, and study assistance.
5. FlexiCovers
We know that today’s employees want flexibility and choice, so employers can tailor the retirement and insurance benefits around their specific needs. Employees can also make choices to suit their personal circumstances.
Transforming the employee benefits experience through digital
Our digital service model is designed to support financial advisers, employers, and members through an omni-channel approach, with a smooth transition from digital to a human when it’s needed. Our
digital channels are supported by our client service administrators, our call centres, and our retirement benefit counsellors. FundsAtWork is leading the employee benefits industry with digital solutions to ensure that all members regularly interact with their benefits. We use digital channels to connect, educate and enable individualisation. Through the Smart Benefit Statement, members have real-time access to their retirement and group insurance benefits on any digital device.
Product shop available through the Smart Benefit Statement
Enabling members to respond to life’s changing realities through their employee benefits is what the product shop delivers. Through the product shop, members have access to emergency savings so they can put money away for these tough economic times. Momentum Emergency Savings will help members save for emergencies without tapping into their long-term savings. Enabled through a regular monthly payroll deduction, it makes it effortless for the employers and their employees. The money is kept safely in a separate money market investment portfolio with preferential fees and the flexibility to withdraw it whenever needed.
Evolving to build and protect
As an industry, we know that offering employee benefits to employees is not just the right thing to do, but also the business-astute thing to do to attract and retain top talent. We also know that these benefits need to be provided in a way that is simple to understand, easy to use and, of course, personalised.
By listening and engaging with clients, business partners and financial advisers, we can make the world of employee benefits easier to navigate and more valuable to employees – providing the tips and tools to ensure that more and more South Africans are protected throughout their financial lives. Partner with us, put your funds to work to build, and protect your clients’ financial dreams.
How two-pot has changed the trajectory of retirement
Compiled by Sandy Welch Editor, MoneyMarketing
Withdrawals from the two-pot system have surpassed even the most buoyant of estimates. At the time of writing, SARS had received 1 213 646 applications for tax directives for people to withdraw from their savings benefits. Members aged 40 to 49 account for the largest share of applications but applications from those aged 30 to 39 have also been substantial. While most directives were approved, a good number were declined, for reasons ranging from incorrect information to unpaid taxes. The total gross sum paid out to date was R21.4bn, with SARS making an estimated R6bn and counting.
Siphamandla Buthelezi, Head of Platforms at NMG Benefits, reports that within the first six weeks of the Two-Pot System launch, NMG Benefits processed claims with an average size exceeding R20 000 – four times higher than anticipated. This surge includes greater engagement from high-income members. Member engagement has been significant, he says, with over 200 walk-ins per day and staff being approached for advice in everyday settings like shops and on the street. “We've paid out almost three years' worth of claims (by volume) in just six weeks, underscoring the active participation of our members in the system,” he says.
But there’s a darker side. In its latest Monetary Policy Review, the Reserve Bank revealed that if withdrawals under the new two-pot retirement system continue to be higher than expected, the Reserve Bank may have to increase interest rates or stop its cutting cycle. The reason for this is these withdrawals will result in increased household spending and may push inflation higher. The big question is: do people really understand the implications of their actions?
Misconceptions still abound
Despite all the education from the financial services industry prior to its implementation, two-pot remains confusing for many. Roxanne Tobias, Actuary and Head of Marketing and Communications at Sanlam Risk & Savings, says it’s crucial to continue to guide clients to understand the risks and nuances of this new system so that they can make informed decisions without compromising their long-term financial security. Tobias notes that many South Africans believed they would receive an immediate payout after applying for a withdrawal, with some expecting automatic payments without needing to apply for withdrawal. Another misconception is the belief that everyone with a retirement fund has access to or will receive R30 000, regardless
of the amount of savings available in their savings pot, which is obviously not the case. There is also an assumption that individuals will be able to withdraw R30 000 annually from their savings component. An interesting observation by Sanlam is that there seems to be fear among some South Africans that they will forfeit the money if they don’t withdraw it from their savings pot.
The involvement of SARS
The role of SARS has also been challenging for many to understand, particularly the part that pertains to existing tax debt. Many of the applications that were rejected related to the incorrect taxable income being declared, in the hope of obtaining a more favourable tax rate. This is illegal, and easy enough for SARS to detect. Before a final amount is paid to the applicant, the pension fund will be informed to also deduct any outstanding debt on behalf of SARS before any payout is made to the member. If a person has a debt arrangement with SARS, the withdrawal will not be affected. If there is a debt owed to SARS, it will be deducted in terms of such arrangement.
they do not earn a lot. The danger here is that the addition of the withdrawn funds may mean that they will become liable for income tax, or it may push them into a higher tax bracket.
In fact, everyone who withdraws from their retirement savings runs the risk of being pushed into a higher tax bracket, irrespective of how much they earn. Once the additional income has been declared, SARS will issue a simulated tax directive, which quantifies the difference between the tax payable on your standard income, and the tax payable on your standard income plus the savings pot withdrawal. This directive will also take all unpaid taxes into account.
A more positive effect
“The role of SARS has also been challenging for many to understand, particularly the part that pertains to existing tax debt”
According to Erica-Anne Strydom, Business Development Consultant at Sovereign Trust SA, tax professionals have witnessed a rise in taxpayers getting entangled in this web of complexities.
Personal income tax implications
Strydom explains that at a micro level, the immediate tax impact may be low for some. This group includes those whose income is below the annual tax threshold or who are in a lower tier tax bracket: those who don’t earn enough to qualify for income tax, or who pay very little tax because
The ‘compulsory preservation’ aspect of the system could contribute to raising South Africa’s low savings rate which could, in turn, powerfully impact the domestic economy and local markets in the years ahead, ultimately benefitting all South Africans, says Strydom. “In short, a low savings rate implies a low investment rate, unless foreign savings can be imported. However, running the current account deficit necessary to do this has a major drawback: most foreign capital inflows to South Africa are used to invest in bonds or equities on the JSE, but these can easily and quickly be reversed. There is very little sustainable foreign direct investment.”
Estate planning considered
Another issue that FAs need to make very clear to clients is the impact of two-pot on wills. Capital Legacy National Manager of Succession Planning and High Advice, Ken Newport, says, “When drafting their will, it’s essential for clients to understand which assets form part of their estate and which do not. In South Africa, retirement funds, retirement annuities, preservation funds and provident funds – whether they are governed by the old system or the new two-pot system – do not form part of an estate.” The beneficiaries who should benefit from a retirement fund must be stated on retirement fund policy documents. South Africa’s Pension Funds Act stipulates how the benefits of a retirement fund member are to be distributed upon their death. This law gives trustees of the retirement fund the power to distribute benefits directly to dependents, overriding the instructions in a will. “When a person joins a retirement fund, they will typically be asked to nominate beneficiaries. However, this nomination is not binding, and trustees
of the fund have the final say based on their assessment of dependents’ needs.”
Not everyone withdrew
“We are a rather small product house within the larger Momentum, and most of our clients contribute an average amount of R 1 200 per month to a retirement annuity,” says Paul Menge, Actuarial Specialist at Momentum Investo. “We were pleasantly surprised that only around 1% of our clients made retirement savings withdrawals. But we’re worried about how many of those who did make withdrawals, fell in the age group of 40 to 49 years. Almost 50% of those who withdrew, fell into this category. This means they don’t have a lot of time left until they retire.”
Why people need the money
The rush to withdraw these funds speaks to the current financial desperation of large sectors of
By Michelle Noth Head: Financial Intermediaries Channel, 10X Investments
our population. According to the latest data from Discovery, 20% have said that they will use the money to cover educationrelated expenses. Arno Jansen van Vuuren, managing director at education insurance provider Futurewise, says these figures highlight the deepening cost-ofliving crisis South Africans have to deal with. Discovery’s research further showed that a quarter of those who withdrew the money planned to use it on car and home expenses, as well as to pay off short-term debt. Many members are using these withdrawals strategically, Buthelezi notes. Anecdotal evidence from the NMG Benefits reveals that some are using the funds to settle high-interest debt, potentially improving their overall financial health. This trend indicates a shift in financial behaviour, with members becoming more
proactive in managing their finances.
For FAs, the way ahead remains clear. It’s going to be a long-term process. There will continue to be confusion, irrational monetary behaviour, and lots of questions from clients. Remain informed and be ready to impart the right information, particularly when it comes to the tax implications.
Sources: News24.com; businesstech.co.za
10X Investments – a tale of two chapters
10X’s first chapter began in 2007 with a vision of empowering investors to achieve longterm retirement goals through competitively priced, goal-aligned investment solutions. When I joined, the company was already a known disruptor, having made a mark with its innovative approach to retirement solutions and direct-to-consumer investments. The firm had experienced strong growth and was recognised in South Africa as a trusted, credible investment manager known for high-quality investments at competitive prices.
By 2021, it became clear that if 10X truly wanted to make a difference in the South African investment landscape, there was more to be done. That realisation led to a complete strategic reset, and the start of what we call ‘10X Chapter 2’. It wasn’t just about expanding; it was about redefining 10X. With a new executive team and fresh energy, 10X made a bold move – acquiring CoreShares in 2022 and subsequently building out our financial intermediaries channel. Now, almost two years later, we’ve grown from R20bn to over R50bn in assets under management. And I
can say with confidence that our commitment to empowering advisers with high-quality, competitively priced solutions has never been stronger.
The business has firmly established an identity and proposition for financial advisers, DFMs and multi managers. 10X has a range of unit trusts available on LISPs and investment platforms at wholesale pricing designed specifically for this market, and concurrently continues to grow the innovative range of JSE-listed 10X ETFs and AMETFs used by wealth managers and portfolio managers in personal share portfolios.
The first actively managed ETF
10X listed the first actively managed ETF on the JSE in May 2023, and was thereby also the first issuer to bring a comprehensive, managed income solution to market in listed format (the 10X Income AMETF, share code INCOME), and later, also brought the first ‘self-indexed’ AMETF to market (the 10X All Asia AMETF, share come APACXJ).
A partner for advisers
In recent years, the total fees that end investors pay have faced significant scrutiny both globally and locally. 10X believes that advisers play an important role – from tax advice to withdrawal strategies and behavioural coaching, to name but a few. That is why, when faced with fee pressure, 10X believes that advisers should
include an allocation to lower fee funds to bring down the overall costs to their end clients. This enables advisers to continue with valuable faceto-face interaction with their clients and thereby retain their advice fees. Reducing fund fees offers a simple and effective solution to address fee pressures and enhance investor returns.
Alongside the low-cost single asset index funds used by DFMs and multi-managers as building blocks in the solutions they create, 10X offers a range of multi-asset solutions that are designed to deliver target returns with the highest degree of confidence and the lowest amount of risk, consistently and repeatedly through time. These solutions enable advisers to help their clients remain invested, avoid switching costs, and achieve their long-term investment goals.
As someone who has worked closely with advisers throughout this journey, I’ve seen firsthand the impact they can have on their clients’ lives – especially when they’re equipped with the right tools and solutions. At 10X, we’re proud to be that partner, offering low-cost, high-quality funds that help advisers do what they do best: guide their clients towards a secure financial future. It is a privilege to support advisers in this role, and I am excited about our continued achievements as we navigate this new chapter together.
An innovative solution to the risk-reward dilemma in retirement
By Bonolo Mosoane Business Development Manager at retirement income specialist Just SA
When approaching retirement, people are often beset with an array of challenging emotions. There can be feelings of vulnerability compounded by the fear of becoming a burden on our loved ones. Feelings of loss and even failure might also be in play – loss of a former sense of meaning, or loss of dignity and independence. Sometimes people fear running out of money more than they fear death.
In addition to grappling with their emotions, retirees also must grapple with the silent killer of their retirement income: inflation. Even though the rate of inflation is slowly starting to come down, it is still forecast to remain around the midpoint of the Reserve Bank’s inflation target, in other words about 4.5%, until early 2026. Which means the already high prices of many goods and services are set to increase even further.
The cost of living is a major issue for all South Africans, but particularly for retirees, many of whom are living on pensions roughly half of their last salary, or less. In addition, the official rate of inflation will be different from how individuals experience it, depending on what goods and services they consume. Healthcare, for example, accounts for an increasing amount of monthly budgets as people age, and increases in the cost of healthcare are typically much higher than CPI.
Against this background, making the right choice when purchasing a retirement income is essential. Life annuities are a good solution as they can provide good protection against inflation, without a decrease in income.
When selecting a life annuity, however, retirees are often faced with the risk-reward dilemma. Either they start with a lower income initially, with annual increases that aim to protect them against inflation later in life, or they start with a higher initial income with fixed percentage increases annually, and possibly run the risk
of their income being insufficient to cover essential expenses in their later years.
With-profit life annuities are still offering good value for money, despite the recent reduction in annuity rates. It gives good protection against expected inflation, but generally a lower starting income in comparison to other types of life annuities.
In view of this, Just SA recently introduced an Advance feature for its with-profit annuity solution, Just Lifetime Income (JuLI). This innovative solution is designed to better suit clients’ retirement risk profiles.
In exchange for capping participation in future investment returns used in determining annual increases at 15% over our six-year smoothing period, with JuLI Advance you can enjoy a higher starting income, which never decreases and continues for life – no matter how long you live. It provides:
• Higher starting income – typically 5% to 15% higher
• Increases linked to investment returns that are capped at 15% over the six-year smoothing period
• Good protection against expected inflation, depending on chosen level
• Same downside risk protection, income can never go down.
JuLI Advance is available as a standalone life annuity or as lifetime income portfolio in a blended living annuity.
Introducing JULI Advance
1. done, sent, or supplied beforehand. noun
1. a forward movement.
2. a development or improvement.
Just Lifetime Income (JuLI) Advance is an innovative life annuity feature offering a higher guaranteed starting income in exchange for capping the future investment returns used in determining annual increases.
Visit justsa.co.za to find out more or to request a life annuity quote
Just Retirement Life (South Africa) Limited is a registered life insurance company, and an authorised financial services provider (no. 46423). We are a wholly owned subsidiary of Just Group plc, one of the UK’s leading providers of retirement financial solutions.
Mapping employees’ path to a comfortable retirement
By Everjoy Gumbo a specialist in the Group Savings & Investments team at Allan Gray
Employers can contribute to bridging South Africa’s retirement gap by availing access to independent financial advice, which can empower employees to make informed decisions in the interest of achieving a secure and sustainable future.
Due to under-saving, most working South Africans are unable to keep up with their basic needs when they retire. This so-called ‘retirement gap’ can be calculated at any point in an individual’s lifetime to determine whether they are on track to achieve a good retirement outcome, or if changes are needed to make up for a projected shortfall. Employers can play a role in reducing the retirement gap by making saving for retirement a condition of employment and providing employees with access to independent financial advice.
How independent financial advice helps bridge the retirement gap
There are four key ways in which independent advice can result in improved retirement savings outcomes:
1. A balanced trade-off between short- and long-term goals
Consulting an adviser should not be a once-off event but rather an ongoing process as individuals journey through different life stages. For people who are already saving, financial advice helps put their short-term and long-term financial goals into perspective by accounting for changing personal circumstances and needs. By establishing a long-term relationship with a trusted adviser, employees can ensure that their finances are aligned to their needs at various points in their lives.
2. A clear understanding of what it takes to secure a comfortable retirement
Retirement is difficult for most people to visualise. IFAs can help their clients gain a realistic understanding of how they want to live during retirement, what this will likely cost, and how much they need to save to achieve their desired outcomes. They can also act as a financial coach, encouraging better investor behaviour and helping employees to stay the course. Employees would benefit from having access to a professional
adviser, who can act as a sounding board when making critical financial decisions.
3. A suitably structured investment portfolio that incorporates risk profiles and investment horizons
The risk of not seeking financial advice is that it may result in employees unintentionally making choices that will negatively affect their retirement portfolio. A good, independent financial adviser will not propose a one-size-fits-all solution. Instead, they will consider each employee’s specific situation, risk appetite and time horizon before proposing an appropriate and diversified portfolio.
4. Navigating the two-pot retirement system
The new two-pot system focuses on preservation of retirement investments while allowing members some access to funds before retirement. IFAs can play a key role in educating members about the implications of withdrawing funds from their savings pot, as well as the value of treating their retirement account holistically and remaining invested for the long term.
Employers can make a difference
Offering retirement benefits gives employees a step up, boosting efforts to save towards a good retirement outcome. In addition, it can help with recruitment as it makes a company more attractive to potential employees, clearly demonstrating its commitment to employees’ longterm wellbeing. Coupled with independent financial advice, this access can bring comfortable retirement within closer reach for a higher number of working South Africans.
The best-kept umbrella fund.
We may not be the first company that comes to mind when you think of umbrella funds, but that is exactly why you should speak to us. Over the past five decades, we have built our reputation by designing simple and transparent products that meet our clients’ investment needs. Our Umbrella Fund is no different. It is everything you’ve come to expect from Allan Gray.
To find out more about our Umbrella Fund, visit www.allangray.co.za, call Allan Gray on 0860 000 870 or speak to your financial adviser.
By Siobhan Cassidy MoneyMarketing contributor
Why it’s hard to just say no to crypto
As anticipated, 2024 has been a pivotal year for cryptocurrencies (cryptos) in South Africa. While the newly regulated asset class is not yet mainstream, investors will increasingly expect advisers and other service providers to have well-informed views on adding crypto to their portfolio or, indeed, excluding cryptos. Cryptos continue to operate in a decentralised environment, but local financial authorities, like those in many other regions, have begun outlining regulatory frameworks. On 1 June 2023, the Financial Sector Conduct Authority (FSCA) started licensing Crypto Asset Service Providers (CASPs). This followed the FSCA’s declaration of crypto assets as a financial product under the Financial Advisory and Intermediary Services (FAIS) Act in October 2022. By mid-2024, 138 institutions had been licensed as CASPs, allowing them to offer financial services related to crypto assets, such as advice and investment management.
Hannes Bezuidenhout, Vice-President for Sales for Africa at Sumsub, a global full-cycle verification platform with more
than 2 000 clients in the crypto, fintech and e-commerce sectors, notes that the classification of crypto assets as financial products “enhances safeguards against fraud, money laundering and terrorist financing”. He adds that this regulation strengthens consumer confidence and attracts institutional investors by adding legitimacy to the market. According to Samukele Mkhize, Head of Compliance for South Africa at Binance, a leading global blockchain ecosystem and cryptocurrency infrastructure provider, this move signals the maturation of the local crypto market.
Globally, digital assets have been reshaping the financial landscape, with prominent figures in the investment world, notably BlackRock CEO and former sceptic Larry Fink, joining the enthusiasts. He has described crypto as a legitimate asset class and compared bitcoin to gold as a store of value, particularly in times of geopolitical risk. As head of the world’s largest asset manager, with assets under management of nearly $10tn, Fink’s endorsement has been a watershed moment for many. His views reflect a broader acceptance of cryptos within global financial circles, similar to the trend emerging in South Africa.
Beyond the potential for impressive returns, one cannot ignore cryptos’ role as a portfolio diversifier, given low correlation with traditional assets, such as stocks and bonds. Some investors see them as a hedge against inflation or currency weakness, factors that are pertinent in South Africa.
The South African Reserve Bank (SARB) maintains that crypto assets are not considered currency, though they are permitted for trading and payments under certain conditions. The SARB’s stance remains a work in progress as it continues to research the role digital currencies might play in the financial ecosystem, including through initiatives like Project Khokha, which is experimenting with tokenised money, blockchains and digital currency.
Medium of exchange
The financial ecosystem has started to integrate cryptos not just as an asset class but also as a medium of exchange. South African retailers are not required to accept only legal tender for transactions; other forms of tender such as loyalty points, vouchers and cryptocurrencies are allowed. Christo de Wit, country manager for South Africa at Luno, a licensed financial service provider and South Africa’s largest crypto investment app, says, “One of the fundamental principles of money is its redeemability. Cryptocurrency is increasingly being treated as more than just an investment.” Luno processed more than R3m in crypto payments through its Luno Pay feature in its
first year, following its launch in September 2023. In early October, the company announced that Luno customers would now also be able to pay with crypto at 31 000 merchants in the Zapper network.
Retail giant Pick n Pay reported in June that it was recording more than R1m in monthly crypto sales after launching the service in late 2023. Through its partnership with crypto payments provider MoneyBadger, Pick n Pay accepts crypto payments at more than 1 600 locations.
Carel van Wyk, MoneyBadger founder and CEO, says, “Crypto payments are cheaper and faster even than card ‘tap-to-pay’, and can be protected with biometric authentication mechanisms to make it highly secure.” Wiehann Olivier, partner and fintech and digital asset lead at Forvis Mazars South Africa, adds that the current transaction charges, a fraction of those charged by traditional payment platforms, is just the start. Describing them as “not bad”, he adds, “The more competition that enters the market, the more you will see a decrease of transaction facilitation fees.” Saying that the effective cost of executing a transaction is probably a fraction of a cent, dependent on the blockchain or second layer application being applied, “we need more players in the game to get that down to its real cost”.
Traditional payment providers, such as banks and credit card companies – which have a more onerous cost base with interbank settlements and reconciliation costs – will be forced to innovate. “The money being spent on financial institutions globally executing transactions on behalf of their customers is in the multiples of millions of dollars. If you could put even half of that money back in the hands of the consumer, it would be fantastic,” says Olivier.
Similarly, foreign workers sending remittances home often lose a disproportionate amount to financial institutions. Olivier asks, “Why is it fair that someone needs to pay 10% of his daily wage to remit funds back to his family?” A Luno report, Bridging Digital and Fiat, highlighted that remittance flows to sub-Saharan Africa reached roughly $54bn in 2023. The World Bank says that in Q4 2023, the average global cost of remittances was 6.9%, with sub-Saharan Africa the most expensive at 7.9%.
Olivier notes that sending money via blockchains or second layer applications costs a fraction of traditional money transfers. He adds that ‘on-ramping’ and ‘off-ramping’ (converting fiat to crypto and vice versa) can add costs, but he hopes that increased investment and expertise will help crypto fulfil its original promise of reducing friction in financial transactions, particularly for the poorest. “When we talk about the uses for crypto in Africa, we generally look at the potential impact on the underserved and
underbanked population, including the migrant workforce, which is significant,” says Olivier.
Common misconceptions
Financial advisers will largely have the concerns of a different cohort on their minds. When it comes to guiding their clients on the ins and outs of cryptos as an asset class, they will have their work cut out, not least regarding tax. One misconception is that blockchain transactions are entirely anonymous and can, therefore, be used to evade tax. Olivier clarifies, “Most blockchains are public ledgers, where all transactions are visible and immutable. SARS may engage with exchanges, request transactional data and use data-matching techniques to trace transactions back to taxpayers.”
They can go back further than five years and crypto asset service providers are obliged to provide information requested by the tax authorities, although this “does not mean that Sars has open access to your cryptorelated assets and transactions held by the service provider”.
“Beyond the potential for impressive returns, one cannot ignore cryptos’ role as a portfolio diversifier"
Another misunderstanding is around what constitutes a taxable event. Many believe that only converting crypto to fiat currency (like South African rand) triggers tax obligations. However, SARS considers any crypto disposal – including trading one crypto for another, or using crypto to buy goods and services – as a taxable event. Depending on the nature of the transaction and the taxpayer’s portfolio, it could be subject to either capital gains tax (CGT) or income tax.
There’s also the belief that cryptos are the currency of choice for terrorism financing and money-laundering. Olivier explains that only a small fraction of blockchain transactions involve criminal activity. “It is probably the worst platform you could use if you’re a criminal because the blockchain is immutable and transparent. You can check every movement, and it is there forever.” He adds, “I think the criminals have come to that realisation over time as well.”
As South Africa’s crypto market continues to develop, it is clear that rejecting cryptos requires as much informed consideration as embracing them once did. Financial advisers must stay updated to guide clients, whether they choose to invest in crypto or avoid it.
Crypto investors and traders must be compliant
Cryptocurrency is subject to all the tax and foreign exchange control regulations fiat currency is, speakers warned during a recent webinar hosted by the Institute of Information Technology Professionals South Africa (IITPSA) Blockchain special interest group in partnership with the Developer User Group.
John Singh, ITPSA Board Vice-Chair and Blockchain Special Interest Group Chair, says, “Crypto enthusiasts believe they should have a fundamental right to own their crypto property. Governments print and control money, so even though people have the fiat money in their pockets, they don’t have complete ownership rights. In the case of crypto, ownership rights are inviolable and are guaranteed by blockchain and cryptography. Regulation is necessary to stop the cases of illegal activities being funded by crypto but it should not violate the property rights of lawful citizens.”
Taxes and crypto
Candice Mesk, director of the Developer User Group, co-organiser of DevConf and a Blockchain enthusiast, notes, “There is no tax implication for buying and holding crypto on a local digital exchange. As long as it’s not being disposed of – for example, exchanging it for another asset, transferring it to someone else, or spending it. The crunch comes when you are disposing of it.” She explains, “The first-in-firstout principle is applied, so the oldest crypto asset will be disposed of first. A gain or loss is calculated based on what the oldest token in your wallet was worth when you bought it, and its value when sold.”
Mesk notes that crypto tax is calculated differently, depending on the intention of the user: “For typical investors, tax is calculated on capital gains and losses, but revenue earned is taxed at the normal income tax rate. If you are paid in crypto, you need to declare that as income. When trading regularly on an exchange, yields may also be considered revenue or income. All earnings need to be declared appropriately and are taxable. SARS expects us all to be responsible citizens about it.”
“Regulation should not violate the property rights of lawful citizens”
She recommends using a crypto tax calculator, “Use a calculator such as Koinly, which can be integrated with many wallets and exchanges, including Luno, to help you generate your tax reports.”
Crypto and exchange controls
On the question of crypto and foreign exchange controls, Mesk says, “South African Exchange Control regulations date back to the early 1960s, and need to come a long way to give robust guidance around crypto. There is a discretionary allowance impact when buying or moving crypto overseas. Currently, a South African resident can’t simply send crypto to a wallet overseas – legally, you need to cash out the crypto assets into rand, then convert them to dollars, euros or other currency, and send that overseas and purchase crypto. This does impact your discretionary allowance. In future, the way we think it’s going is that moving crypto out of South Africa should be considered externalisation of capital, and we expect guidelines to make this clear, as well as reporting mechanisms.”
Crypto is potentially disruptive to traditional cross-border remittance solutions, she says. “Services like Yellow Card and Kotani Pay are seeing phenomenal growth and are licensed in some jurisdictions – so they do fall under regulatory supervision, which gives the assurance that their Know Your Customer (KYC) and Anti Money Laundering (AML) protocols are in order. Crypto is just opening another window for cross-border remittance.”
ETFs for ordinary investors
Mesk also says, “ETFs are very popular with institutional investors, but ordinary investors can access these too”. EFTs bring a certain amount of confidence and stability to the asset class. Companies like BlackRock offering spot crypto ETFs are regulated. It should be noted that as an investor, you don’t have direct access to those crypto assets – an asset manager is taking responsibility for managing those assets.
By Aleks Andjelopolj GM of Product Experience, Luno
How crypto assets are reshaping wealth management in South Africa
As a financial adviser or wealth manager, you may have noticed a shift in the types of conversations you’re having with your clients. Whether it’s high-net-worth individuals looking to diversify their portfolios or retail investors who want to add crypto assets to theirs, crypto assets are becoming a regular feature of financial discussions.
What’s fascinating about this trend is that, for the first time in financial services history, the adoption of an asset class is being driven from the ground up – not by institutional players developing new products and selling them, but by individual investors.
Crypto assets have captured the attention of millions, and South Africa is no exception. Luno is a licensed financial services provider and South Africa’s largest* crypto investment app. With over four million of Luno’s global customers based here, we’re seeing a strong local appetite for crypto. If you haven’t had a client enquire about crypto holdings yet, it’s only a matter of time before they do.
As trusted advisers, it’s essential that you are prepared for this growing interest. Clients want a holistic view of their financial lives, including traditional investments to digital asset holdings. Understanding where cryptocurrencies fit into estate planning, portfolio diversification and long-term wealth management will become increasingly important as adoption continues to rise.
Why are investors so interested?
Cryptocurrencies offer potential as a hedge against inflation and appealing diversification. Retail investors and high-net-worth individuals alike see crypto as an opportunity to spread risk and protect their wealth from economic uncertainties.
We’ve seen market volatility and inflationary concerns driving interest in cryptocurrencies. More recently, thematic cycles, such as the intersection of AI and blockchain and the tokenisation of real-world assets, are driving interest and appetite.
Beyond individual investors, institutional interest in crypto has grown at an unprecedented rate. Major global players like BlackRock have entered the space, launching crypto products and bringing further legitimacy to the sector.
BlackRock’s Bitcoin exchange-traded fund (ETF) became the most successful ETF ever launched, demonstrating the demand for institutionalgrade exposure to crypto assets. Crypto ETFs and similar products are likely to become common inclusions in portfolios, offering exposure to this asset class in a more structured way.
Luno: a homegrown success story
Luno has deep roots in South Africa and has grown into a global leader in the cryptocurrency space. Founded in South Africa just five years after Bitcoin, Luno is one of the oldest cryptocurrency exchanges. After 11 years, it is thriving and serving more than 14 million customers globally. It continues to grow alongside the rapidly evolving crypto assets industry while maintaining a strong proregulation and compliance focus.
Luno adheres to the stringent requirements that govern other licensed financial service providers. From the start, the business built strong compliance foundations, anticipating that regulation would eventually catch up with the world of crypto assets. While crypto remains a relatively new and fast-moving sector, Luno’s experience navigating other regulated markets has allowed it to adopt institutional-grade standards early. This means your clients’ assets are in safe hands; particularly as Luno has never experienced a breach, testament to its robust security practices.
South Africa’s institutional investment community is vast, and there’s significant capital sitting in collective investment schemes. Once crypto becomes eligible for inclusion in these schemes, we can expect a surge in demand from institutional players, further legitimising crypto assets and creating new opportunities for wealth managers and financial advisors.
Luno’s position as a regulated entity gives it a strong foundation to support this next phase of crypto’s evolution. The company has built its reputation on operating within a compliant framework and ensuring that customers’ crypto assets are secure.
What’s next for crypto?
The world of cryptocurrency is still relatively young, but don’t underestimate its growth. Active crypto addresses have tripled since the end of 2023, hitting 220 million in September of 2024.** The most profitable company per employee is not Nvidia or Goldman Sachs, it’s a stablecoin issuer that launched in 2014. This growth and
“If you haven’t had a client enquire about crypto holdings yet, it’s only a matter of time before they do”
The company’s focus on security is key in the custody of crypto assets. There are more than four million Luno wallets in South Africa, where total crypto ownership is estimated at six million in the market, underscoring Luno’s significant reach. Luno is a trusted partner in the local market – many of your clients are likely already interacting with Luno to manage their crypto assets. To provide comprehensive advice, you must understand the platforms your clients use and ensure their digital investments are as wellmanaged and protected as their traditional ones.
The importance of regulation
The regulatory landscape is an important factor that will continue to shape the future of crypto in South Africa. Currently, there are two areas that require greater regulatory clarity. The first area that financial professionals need to be aware of is the classification of crypto assets by the SA Reserve Bank. Confirmation that crypto assets held in custody onshore, by a FAIS-licensed Crypto Asset Service Provider (CASP), are deemed local assets will provide certainty around the application of the Exchange Control Regulations.
The second area is that while cryptocurrencies are currently excluded from the asset classes permitted to be held in collective investment schemes, a shift to a more permissive environment, in line with global financial market leaders like the US and UK, could catalyse increased institutional participation.
the disruption globally are reminiscent of early internet adoption. As new use cases are established and find product market fit, this is set to rise exponentially.
As the landscape matures, regulations continue to accommodate this new asset class, and new products are developed, staying informed will be essential. With eleven years of deep industry knowledge, a licensed financial services provider and a flawless track record of keeping customer funds and information safe, Luno should be the only destination for financial professionals and their clients.
How Luno can help advisers
As a financial adviser, do you find yourself in unfamiliar territory? Does providing advice on something that was on the investment fringe just a few years ago feel uncomfortable? If the answer is yes, just remember that you don’t have to navigate it alone.
Luno can support you and your advisory practice to future-proof. Cryptocurrency is no longer a niche market or a passing trend. It’s here to stay, and it’s time to embrace the opportunities it presents. Interact with Luno and explore the possibilities to help your clients navigate the future of crypto assets confidently.
The future of finance includes crypto assets, and being prepared now will ensure you’re ready for what’s next.
*Source: State of Crypto Report 2024
** In terms of the number of South African customers on Luno’s platform
Crypto as an investment
By Yande Nomvete Operations ManagerAfrica for Binance
Cryptocurrency is rapidly gaining momentum as a recognised form of currency, globally. According to MDPI research, the digital, virtual currency has seen significant traction in countries such as Africa, United States, Australia, UK and some parts of Europe, with Bitcoin remaining the most used, followed by Ethereum. It is moving into a more mature stage of its development, says S&P Global, which is ultimately leading to increased interest in how crypto platforms, and the ecosystem as a whole, can increase the value it offers and its sustainability.
The legitimacy and potential of crypto is having a positive impact on regulatory landscapes in Africa, with many countries showing forwardthinking planning around how the ecosystem can evolve to provide improved economic growth and investment opportunities. South Africa issued its first 100 crypto asset service provider licences, and Kenya has announced their intention to follow suit. With regulations framing the platforms more cohesively, says the Africa Blockchain Report, there is more potential for investment opportunity. In addition, reducing regulatory uncertainty reduces the risk traditionally associated with investment in cryptocurrency as it is important for long-term viability and adoption.
Another key consideration for crypto is its volatility. This is both an asset and a risk factor – the currency has the potential for high returns, something early adopters of Bitcoin and Ethereum benefitted from as they saw their investments multiply many times over. The story of the crypto-millionaire may not be as common today, but it is definitely not out of reach when investments are made wisely and on trusted, safe, regulated platforms. The market has seen an increase in various altcoins and DeFi tokens, which have delivered returns that overshadow traditional investment vehicles.
The potential for high returns is rooted in the disruptive nature of blockchain technology and its applications. These cryptocurrencies are not just speculative assets, they are innovations in finance and digital ownership, and as they continue maturing, they’re offering investors solid returns that have long-term value. However, it is important to remain aware of the volatility of cryptocurrencies. Amid the success stories are failed projects and diminished returns – this makes it key that investors approach the market with a level of caution, and use a platform that provides them with insights that are trusted and relevant.
Binance provides a crypto wallet for traders to store their electronic funds, and is built on trusted foundations that are designed to support investors as they explore different currencies. The platform offers programmes designed to help people make investment decisions – Binance Academy – which are free and accessible to anyone who wants to transform their investment strategies. Providing a deep understanding of cryptocurrencies and the markets, Binance helps investors minimise the risks of volatility and helps them better manage and invest their money.
“Cryptocurrency is changing the shape of investment, providing users with a fresh and innovative way of managing and expanding their funds”
The platform is also secure, which is another key challenge within the crypto investment space. While the technology itself is secure, hacks and scams can affect the wallets and platforms that trade and store cryptocurrencies. The risk of losing funds to unethical actors underscores the importance of using a platform that has invested in its own security. When operating within a compliant platform that’s aligned with security and regulatory expectations, investors can ensure the long-term sustainability of their investments.
While the cryptocurrency investment landscape is a mix of opportunity and challenge, it is a space where anyone can benefit from high returns and an energetic investment portfolio. The trick is to use the right platform and understand the market and its risks. For investors willing to navigate these challenges, the market is more than just a space in which to grow their funds – it is a chance to participate in the future of finance.
Reassuringly Reliable.
WORLD’S #1 CRYPTO EXCHANGE
WORLD’S #1 CRYPTO EXCHANGE
WORLD’S #1 CRYPTO EXCHANGE
WORLD’S #1 CRYPTO EXCHANGE
WORLD’S #1 CRYPTO EXCHANGE
WORLD’S #1 CRYPTO EXCHANGE
By Andrew Ludwig Co-founder
and CEO of Currency Hub
A new era for crypto investors
In a landmark move for South African investors, the Financial Sector Conduct Authority (FSCA) officially brought crypto assets under its regulatory framework in December 2023. This shift is crucial not only for financial advisers and professionals but also signals a new level of security and transparency for retail investors. The recognition of cryptocurrencies as legitimate financial instruments reflects a growing global trend in the financial markets, where digital assets are gaining credibility, especially following initiatives like BlackRock’s recent Bitcoin ETF.
For South Africans, this development mirrors the FSCA’s regulation of hedge funds in 2015, which successfully transformed hedge funds from an exclusive, opaque asset class into one widely understood and accessible. I have seen this evolution firsthand, having been deeply involved in the hedge fund industry, and now applying that same expertise to the burgeoning crypto market.
The importance of FSCA regulation
With FSCA regulation, crypto assets in South Africa are now seen as a more stable and reliable investment class. This offers crucial protection for investors, ensuring higher transparency, security, and accountability for crypto service providers, while reducing the risks of what was once a highly speculative market.
“One of the safest ways for investors to gain exposure to cryptocurrencies without the direct risks of price volatility is through crypto arbitrage”
Crypto Asset Service Provider (CASP) licences now require businesses to meet strict regulatory standards, marking a pivotal moment for the industry. This regulation fosters responsible growth, integrating digital assets into the broader financial market.
For investors, FSCA’s move adds legitimacy to crypto, making it a viable part of diversified portfolios, similar to the maturity seen in hedge funds after regulation.
Understanding the new crypto landscape
The regulatory framework places new responsibilities on financial professionals. Advisers must now understand how cryptocurrencies fit into broader investment
strategies, as digital assets are a rapidly evolving part of finance. The question is no longer if crypto belongs in a portfolio, but how it fits.
Opportunities in crypto range from traditional buy-and-hold strategies to more advanced approaches like crypto arbitrage, which requires a deeper understanding of the asset class and markets involved. Financial professionals who stay informed about regulations and these opportunities will be better positioned to guide their clients effectively.
A secure entry point into digital assets
One of the safest ways for investors to gain exposure to cryptocurrencies without the direct risks of price volatility is through crypto arbitrage. This strategy profits from price differences between markets, allowing investors to benefit without directly holding digital assets.
For South African investors, Currency Hub is the top arbitrage provider in terms of volume and profits. Entering the market in 2017 and becoming the most regulated in 2018, Currency Hub has consistently delivered strong returns. Though market premiums have decreased to 1.5%-3% from earlier highs of 30%, the strategy remains highly profitable. Clients can potentially earn over R100 000 within a few months, depending on the capital invested.
Why Currency Hub is leading the market
Several factors distinguish Currency Hub in the crypto-arbitrage space. Firstly, all associated companies are FSCA regulated (FSP 50850) and authorised CASPs, ensuring compliance with stringent regulatory requirements. This regulation covers all aspects of arbitrage, from strategic forex booking to precise timing of purchases.
Currency Hub also operates through a SARB-approved forex intermediary, enabling clients to fully utilise their R11m annual foreign investment allowance. Clients benefit from Currency Hub’s handling of all aspects of the process, including account setup, liaising with SARS for AIT applications, and booking forex. With the entire process managed online, it’s efficient and removes the administrative burden from clients.
A proven track record of success
Currency Hub’s results speak for themselves. Over the past seven years, the company has conducted more than 250 000 trades, totalling over R25bn in value. They have achieved this without a single loss, due to their comprehensive hedging strategies that
mitigate exposure to foreign exchange and crypto fluctuations. By securing fixed rates for each trade, Currency Hub generates client profits regardless of day-to-day volatility in the rand/dollar exchange rate or changes in the price of Bitcoin.
This hedging solution is key to the success of their arbitrage strategy and, importantly, they trade every day, while most other providers only trade twice per week. Clients are never exposed to the risk of Bitcoin price drops or sharp changes in the forex market, providing peace of mind that their profits are stable and predictable.
Simplifying arbitrage for clients
Another area where Currency Hub excels is in simplifying the arbitrage process. Investors interact only with Currency Hub, rather than needing to coordinate with multiple service providers. In-house accountants streamline the AIT application process, optimising approval timelines and reducing potential delays.
Currency Hub has also built relationships with authorised dealers, such as Capitec, for foreign exchange processing, which further reduces counterparty risk. The company works with institutional-grade OTC desks and exchanges to secure stablecoins, minimising exposure to cryptocurrency price volatility. Clients can rest assured that their investments are handled with the highest levels of security and transparency.
A viable opportunity for financial advisors and retail investors
For financial advisers, Currency Hub presents an excellent opportunity to introduce clients to the world of digital assets in a secure and regulated manner. Crypto arbitrage, underpinned by FSCA oversight, is a relatively low-risk strategy that offers strong returns while minimising exposure to the price volatility often associated with crypto investments.
As the regulatory environment around crypto assets continues to evolve in South Africa, financial advisors who understand the potential of crypto arbitrage will be wellpositioned to guide their clients towards new opportunities that add diversification and growth to their portfolios.
Crypto arbitrage is one of the safest and most effective ways to engage with the digital asset space. With FSCA regulation in place, platforms like Currency Hub offer a highly regulated, efficient, and profitable solution for South African investors. To learn more, visit https://www.currencyhub.co.za and explore the benefits of this proven strategy.
Making the case for income protection
Compiled by Sandy Welch Editor, MoneyMarketing
The importance of income protection for your clients can’t be overemphasised. In the case of a life-changing event, such as an accident or illness, it will enable them to maintain their standard of living, ensuring they can receive a steady income during recovery, reducing the strain on savings and investments.
Unlike some other policies, income protection typically covers a broad spectrum of health issues, including both physical and mental illnesses. Income protection serves as a safety net, helping them to safeguard their financial future and providing peace of mind during uncertain times.
Major payout trends
Globally, approximately 1,7 billion people suffer from musculoskeletal conditions, the leading cause of disability worldwide, with lower back pain being the biggest cause of disability in 160 countries. It’s a trend that is reflected in South Africa.
Discovery Life paid out approximately R613m in income protection and R1bn in disability benefits last year. The main conditions claimed for in terms of income protection were musculoskeletal issues, such as back, shoulder and knee injuries, which lead to long periods of time off work. According to Sylvia Steyn, Head of Claims and Service at Discovery Life, musculoskeletal issues accounted for 27% of claims among women and 36% among men. Women also claimed income protection due to cancer (12%) and mental health issues (10%), while men cited nervous system disorders (10%) and cancer (9%) as key reasons.
George Kolbe, the head of Momentum Life Insurance marketing, says that income protection claims totalled R285m in 2023. Nafeesa Gaida, Head of Claims at Momentum Life Insurance, concurred that across lump-sum disability and income protection, the top causes included musculoskeletal, cancer and nervous system issues. Gaida notes that musculoskeletal conditions were more prevalent in income protection because they are often temporary, linked to sports injuries or accidents. Notably, 41% of all income protection claims paid in 2023 were in respect of claimants with a permanent disability. According to the 2023 claims statistics, individuals aged 30-49 were the most likely to claim on their income protection cover. The largest claim paid out was R28 195 664, when the
claimant suffering from rheumatoid arthritis had become permanently disabled. As he had linked his permanent disability enhancer to his income protection benefit, he could convert all his future monthly payments into a lump-sum payment.
Professional Provident Society (PPS) paid out R1,8bn in income protection in 2023, including R950m for sickness benefits for professionals unable to work for more than seven days, and R850m for permanent disability benefits for those unable to work for more than two years. According to Izak Smit, CEO of Furthermore, 67% of sickness and disability income claims were paid to clients under 45, highlighting a significant trend in the needs of younger clients.
“The main conditions claimed for in terms of income protection were musculoskeletal issues, such as back, shoulder and knee injuries”
In 2023, Sanlam paid out R10,7bn in claims across both Sanlam Group Risk and Sanlam Risk and Savings. Sanlam Risk and Savings paid over R6bn for claims, and this amounted to R18m in payouts every working day. Furthermore, 67% of sickness and disability income claims were paid to clients under 45, highlighting a significant trend in the needs of younger clients.
Standard Bank-owned insurer Liberty paid out R9.14bn for mortality, lifestyle protection and income protection claims in 2023. This included income protection lump sums (R427.6m) and monthly income protection payments (R239.6m). Liberty Corporate Benefits paid out R2.4bn in claims to at least 10 950 clients in 2023, with R888m going to income protection benefits, an increase of 10% compared to the previous year. Psychiatry and neurological disorders accounted for 12% of all corporate claims paid in 2023.
Mental health conditions
An analysis of the statistics from large South African insurers shows that claims for mental health conditions account for 18% of disability claims paid out and is the third highest cause of disability claims, just behind musculoskeletal and cancer claims.
Claims for psychiatric or mental conditions typically involve temporary conditions such as burnout or stress. “When looking at psychiatric or mental conditions under permanent disability, this is more difficult because the criteria to meet a lump-sum disability are stricter,” Gaida says.
Liberty says that mental health remains a growing concern across the globe, and ensuring your clients’ financial protection portfolio extends to cover these types of conditions is no longer a nice-to-have form of cover.
Psychology-related disability claims are expected to continually increase over the next decade. According to Sinenhlanhla Sithomo, Head of Insurance Business: Investec Life, from a life insurance perspective, providing access to affordable and effective insurance cover for treatment is the starting point. Financial protection against the cost of lifestyle adjustment, as seen with any other disability, is important to recognise and provide appropriate cover for. This could include costs for personnel support to take care of family or pay off major debts.
“In the event of a permanent disability, having a lump sum cover payout helps with lifestyle adjustments,” he says, “While an income cover payout helps to continue paying for regular living expenses and offers you an opportunity to keep living a fulfilling life.” To be fully supportive, insurers can further encourage disclosures around mental health by taking into consideration aspects such as the social support structures individuals have in place to negate the premium loadings during the underwriting process.
Liberty’s retrenchment cover now a complete offering
By Kresantha Pillay Chief Specialist for Risk Solutions at Liberty
Liberty’s popular Retrenchment
Protector cover is back in full after being largely withdrawn during the Covid pandemic.
Kresantha Pillay, Chief Specialist for Risk Solutions at Liberty, talks to us about the relaunch.
Why is retrenchment cover a critical component of an individual’s insurance portfolio?
Retrenchment cover has long been a popular product for advisers and their clients. Nowadays, there is a high level of uncertainty in the workplace, so it is a good idea to always be prepared and insured against the possibility of losing your job. A person’s salary is usually their greatest asset, since it enables them to pay off large monthly expenses, such as home loans and automobile loans, as well as general household expenses. It must be said this cover should be offered in the broader context of comprehensive income protection. It is interlinked as a holistic solution to protect against potential financial upsets that can have a real impact on a person’s long-term outlook.
What happened to the cover during Covid?
You could say a real sign of how important retrenchment cover is emerged during this time. Retrenchment claims at Liberty peaked between August and October 2020 on the back of a lag effect from the start of lockdown. During these three months, claims went to over 60 per month, compared to just over 10 per month during January and February in the same year, showing the effects of the economic contraction at the start of the pandemic.
Consequently, we took the difficult decision to temporarily withdraw most of our retrenchment cover in April 2020 and offer the benefit in a reduced form, to be able to fully meet our obligations to existing clients. But as of 2024, this has changed, and Liberty has relaunched the cover offerings in full.
Tell us about what’s on offer?
The relaunched cover comes in two different offerings, which responds to repeated calls from advisers and clients to reintroduce the offering in full to meet the needs of the current environment. One package offers a 12-month payout, while the other gives a six-month payout. Both provide the claimant with protection against a Section 189 employment termination. The cover requires two years of permanent employment before any claim, as well as some months before section 189 comes into force. It offers an overall maximum of 75% of after-tax monthly income, or a R30 000 monthly cash payout.
Does the cover have other stipulations?
Yes, it does. The 12-month cover, which is NCA compliant, cannot be taken on its own, it requires life cover, impairment and income protector benefits to be in place and can only be taken along with Liberty’s Loan Protection Package. However, the six-month cover option requires only life cover or income protector benefits to be in place.
What is the relevance of retrenchment cover in today’s environment?
We are now certainly living in more optimistic economic times, with the government actively trying to build capacity into the economy in terms of power supply and transport infrastructure. This, hopefully, will start adding more jobs into the economy, which is good news for everyone. But this does not mean retrenchment cover is not relevant. We live in an increasingly fastpaced world where key skills and what can seem like rock-solid employment prospects can be shifted in months.
It seems contradictory that the technology that drives economic growth at the same time can create job losses because it changes so fast. Businesses that thrive these days are the ones that adapt to change the best, and this often means acquiring new skills while letting older skills go. No one is immune to the ongoing changes. This is why retrenchment cover has remained a reliable solution for every adviser to offer to their clients.
“The relaunched cover comes in two different offerings, which responds to repeated calls from advisers and clients”
Affordable healthcare cover for new entrants and young professionals
Young professionals have distinctive healthcare needs, and they often invest time researching affordable plans that provide benefits they need most. Research conducted by Discovery Health highlights the financial barriers faced by young adults when considering medical aid coverage. Medical scheme contributions consume a larger share of younger people’s disposable income. Discovery Health data analysis shows that for members aged 20-29, approximately 7% of their income goes toward medical scheme contributions, whereas for older working adults approximately 4% or lower of their monthly income goes toward medical scheme contributions. Discovery Health research estimates that 109,000 uncovered young professionals would take up medical scheme cover if there was an affordable option and where contributions amount to roughly 5% of their income.
Addressing the needs of the next generation Discovery Health Medical Scheme (DHMS) has introduced a new medical scheme plan,
“Active Smart aims at addressing the healthcare needs of new entrants and young professionals”
Active Smart, aimed at addressing the healthcare needs of new entrants and young professionals. Launching on 1 January 2025 and subject to approval and registration by the Council for Medical Schemes, Active Smart will
The Active Smart plan addresses five core healthcare priorities identified as being most important to young professionals:
• Preventive care: Coverage for routine health check-ups, pap smears, and annual flu vaccinations for at-risk members through the plan’s Screening and Prevention Benefit, as well as the Personal Health Fund. Discovery Health Medical Scheme has seen a 23% increase in the prevalence of hypertension among younger members since 2019, underscoring the importance of preventive care.
• Mental health support: Access to the Discovery Health Medical Scheme Mental Health Care Programme, which includes consultations with a Premier Plus GP, anti-depressant medications, psychotherapy, and online Cognitive Behavioural Therapy, as well as access to
be the most affordable medical scheme option in the open medical scheme market, offering a tailored benefit package for individuals starting out in their careers. The new plan is priced at R1 350 per principal member per month.
tools and benefits to monitor and manage their condition. Claims for mental health conditions have increased, with one in seven young adults now claiming for such conditions, compared to one in 20 in 2013. Emergency cover: Full coverage for emergencies in any private hospital and unlimited access for planned admission to the Dynamic Smart Hospital Network, subject to a fixed deductible.
• Dental and eye care: The plan offers an annual eye test with a network optometrist for R125 and a dental checkup for R190.
• Over-the-counter medicines: Members can obtain over-the-counter medication and contraceptives through the pharmacy network. Members can also utilise their Personal Health Fund to supplement their day-to-day medical expenses.
With the launch of the Active Smart plan, Discovery Health Medical Scheme is offering a solution designed to support the next generation of professionals as they navigate the unique challenges of early career life.
Liberty introduces innovative new cancer cover
Liberty is introducing a series of upgrades to its renowned Lifestyle Protector cover, which includes a new cancer policy that extends protection for the disease well beyond existing offerings on the market. Cancer Claim Booster is a unique offering in that it covers cancer progression beyond diagnosis and treatment. It pays an additional 25% after stage three or four cancer that progresses despite treatment, or which reoccurs, or results in a 12-month life expectancy or less.
“Cancer is never a predictable journey, and previously patients would simply receive an insurance payout at the beginning, only to find they needed more funds if the disease persists in some way which is unfortunately a reality.” says Kresantha Pillay, Chief Specialist for Risk Solutions at Liberty.
Upgraded critical illness cover
Along with this innovative extended cancer cover, Liberty is also introducing a Critical Illness Booster, which pays out an additional 25% to 100% extra for certain long-term conditions that require additional support.
“This would help support you if you had a heart transplant, for example, and needed something like anti-rejection medication for the rest of your life,” Pillay says. “Having cover like this takes care of events that have a life-long impact, which can have a serious effect on your finances. Another example would be limb loss, where ongoing treatment for physical and mental outcomes would be required to lead a more normal life.”
Early cancer and mild illness cover upgrades
A further new cover offering is an extended upgrade to help with less serious diseases, but which require some financial assistance. In this case, the cover pays out 10% of the Living Lifestyle sum assured. For example, this could be used to pay for something like the removal of a premalignant lesion. Or it could be used to cover brief hospitalisation for something like Guillain-Barre Syndrome, for example.
Some of the most comprehensive insurance packages available
Another upgrade that is now also being offered is the ability to cover your child on the Living Lifestyle policy all the way up to the age of 25. This recognises the global trend where children can sometimes spend longer in education to get ahead. “We’re always looking at ways to offer more comprehensive cover. We want to be able to offer assistance in all kinds of life situations, and these new enhancements will allow advisers to broaden their offerings, and keep their clients fully protected,” Pillay says. Liberty, now part of the broader Standard Bank Group, offers a range of longterm life insurance solutions, including life cover, disability and retrenchment cover, business cover and retirement planning. Recently, during the Group’s half-year results, Liberty recorded a favourable result, with a 19% jump in earnings.
By Lee Callakoppen Principal Officer of Bonitas Medical Fund
Innovation, life stages and quality care
Our value creation model has stood us in good stead with over R1.4bn in reserves returned to members through benefit enhancements and low and deferred increases in 2022 and 2023.
Calculating the changes
Over the past few years, we kept our contribution increases well below the industry average and while we have seen a positive performance in the Fund, we must balance financial sustainability of the Scheme with enriched benefits. For this reason, contribution increases range from 8.7%* to 14.9%* per plan (the latter impacting 1% of members) with a weighted increase of 10.2%* from 1 January 2025.
The Board and Executives' input considered market trends, international healthcare protocols, industry analysis, benchmarking reports and benefit utilisation patterns and independently commissioned research across core stakeholder groups.
Membership profile
Our members are from across a diverse range of backgrounds – with corporate membership spanning over 65 industries and profiles varying from students and singles to families, established professionals and those enjoying their golden years.
A quintet of awards
One way of measuring and gaining insights on whether a brand is getting it right, is through independent surveys and audits from industry bodies and consumers themselves. Recently, Bonitas was announced the winner of the ‘Medical Aid Category’ in the Ask Afrika Orange Index® Awards for 2024/2025. It is the fourth category win over the past seven years. Principles such as trust, sustainability, reputation and care feature strongly in top customer need attributes. It is also the fifth accolade for the Scheme this year. Others include: Two BHF Titanium Awards for ’Best Integrated Report’ and ‘Best Operational Performance’, Top 500’s ‘Leader for Medical Aid’ and a gold in the Daily Sun Readers’ Choice Awards.
The life stage model
Our new model is designed to revitalise our approach based on industry, life stage and various psychographic and behavioural science elements. This is supported by a diverse product range, tailored wellness and screening benefits, access to healthcare services and optimised member communication.
We continue to make health risk assessments and preventative care screenings pivotal to managed healthcare initiatives. After all, early detection and speedy intervention is critical to enhancing our member’s quality of life. Half of our population has high blood pressure and, in line with international treatment protocols, one blood pressure monitor will be funded over a two-year cycle per family.
What’s new?
Integrated chronic care family practitioner network – There is a direct correlation between chronic diseases and mental health. For 2025, we have added a mental health component into our GP network, to facilitate early disease detection, diagnosis and multidisciplinary care coordination, through the high-quality network of doctors.
• Hearing loss management (Audiology) – This includes free online hearing screening for all South Africans. Members on selected plans will receive hearing aids, audiology services and hearing aid acoustic services.
• Weight management programme – Obesity or being overweight substantially increases the risk of morbidity from at least 15 conditions. The programme, led by a biokineticist, provides a holistic approach to weight loss that includes access to a dietician and psychologist for support on exercise, nutrition and mental health.
• Female health programme – We’re making a renewed commitment to the health and wellbeing of women and toddlers through the Mother and Child Care Benefit. This benefit includes the Maternity programme in collaboration with CareWorks, which has
an emphasis on preventative care and early detection of female-specific health issues, based on life stages. It includes support for expecting mothers, including early identification and weekly engagement for high-risk pregnancies, antenatal vitamins, and post-childbirth follow-up calls. There are also milestone reminders for children under three, immunisation reminders and online screenings for infant and toddler health. Screening by an ophthalmologist for premature neonates is offered on all options, except BonCap.
• Bonitas geriatric care – Wellness screenings, vaccines for flu and pneumonia, ageappropriate screening for prostate, breast and cervical cancer, osteoporotic screenings, coordination of care with a nominated GP, chronic care management and support, and fall-risk assessments, covered by Risk, allow seniors to live independently.
• Diabetic retinopathy screenings – Our members can access cutting-edge, AI-driven screenings for diabetic retinopathy and other conditions of the eye.
• Benefit Booster – We are offering even more value for money on the Benefit Booster, which gives access to up to R5 000 as an additional benefit to use for out-of-hospital expenses, at no extra cost.
Despite the challenges in the healthcare industry, we continue to run a tight ship, while meeting the diverse needs of our members with innovative benefits, a life stage model and a commitment to quality care.
*The increases and new benefits have been submitted to the CMS and are subject to their approval.
By Leo Dlamini, CEO and Principal Officer at Bestmed Medical Scheme
Bestmed remains steadfast amid medical increase
Medical inflation has, for several years, exceeded the Consumer Price Index (CPI) and, therefore, annual medical scheme increases are higher than CPI. However, in 2021 and 2022, many medical schemes opted to increase their contributions by less than CPI because they had accumulated reserves during the Covid-19 pandemic. With claims returning to pre-Covid levels, schemes must safeguard their sustainability by managing reserves and ensuring that contribution increases are at levels commensurate with claims and expenditure.
In navigating these changes, Bestmed has prioritised its members by continuing to offer comprehensive and rich benefits, as well as a 4.6% average benefit limit increase, further solidifying its reputation as a trusted provider.
Since the end of the Covid-19 pandemic, healthcare claims have risen more rapidly. This is due to several reasons, including: increased claims for treating long-term health complications related to the Covid pandemic, an increase in oncology prevalence, and an increase in the prevalence of Fraud, Waste and Abuse (FWA).
We’ve also seen growing demand for mental health services exacerbated by the pandemic (and post-pandemic realities), alongside an increased prevalence of chronic conditions such as diabetes and hypertension, resulting in rising claims. Despite these challenges, Bestmed continues to achieve strong principal membership growth and has done so over the past five years, including the Covid-19 lockdown period. We believe this growth is indicative of Bestmed being among the most affordable medical schemes in the country, despite the ever-escalating cost of healthcare.
The Scheme’s offering goes beyond affordability. Bestmed has a strong membership service culture, which is proven by the numerous customer experience
accolades received over the past few years. Bestmed has won, among others, the 2023 Board of Healthcare Funders Titanium Award for Excellence in Creating Access to Quality Healthcare, the Financial Intermediaries Association (FIA) Intermediary Experience Award 2022 for Product Supplier of the Year: Healthcare (and a top three contender for the same award in 2023), and ranked second in the Medical Aid Companies category in the Ask Afrika Orange Index® 2023-2024 and 20242025. Bestmed was also awarded the News24 Medical Scheme of the Year award for 2024.
“The 2025 contribution increase must be considered in the context of Bestmed’s average increase over the past five years, which is 7.0%”
Among the upcoming key product changes that members should take note of is the enhancement of our internal prosthesis offerings with endovascular and catheter-based procedures. Drug-eluting stents will now be funded on all our options, subject to the limits for vascular prosthesis on each option. Both single and dual-chamber pacemakers will also be funded on all options. We have also adjusted the preventative care benefits on the Rhythm1 option for mammograms and pap smears to be covered on this option from 2025. This means that these two preventative benefits are now covered on all 14 of our product options.
The structure of the specialised diagnostic imaging benefit has also been changed, where MRI scans, CT scans and nuclear/isotope studies will now have a combined family limit
per annum for in-hospital and out-of-hospital on all options, except Rhythm1 where it is only covered for approved prescribed minimum benefits (PMBs).
In addition, dependants up to the age of 24 years are still regarded as child dependants, where previously dependants who were registered students up to the age of 26 years were covered at child dependant rates. The existing benefit for members only paying for three children and the rest being covered for free, remains in place.
Bestmed’s core priority remains that of providing value-for-money medical cover for our members, while also managing the medium to long-term sustainability of the scheme. While we recognise that the proposed (subject to CMS approval) contribution increase of 12.75% on average for all options in 2025 is higher than previous years, we are confident that it is the right thing to do given the increased demand (utilisation) for healthcare services by our members, as well as the increasing cost of healthcare, which is largely beyond our control. The 2025 contribution increase must be considered in the context of Bestmed’s average increase over the past five years, which is 7.0%. This is marginally less than the market average for the same period. Also, while the annual percentage increase is an important lens through which one compares what different medical schemes are changing, the rand amount (absolute number) is what the member will experience. Rand for rand, Bestmed’s benefit options will remain competitive in 2025 and beyond.
We have prioritised maximising value for our members, while continuing to grow and remain competitive within the industry. As we celebrate the milestone of our 60-year anniversary, we commit to continue to be attentive to and serve our members for the next 60 years and beyond.
Gap claims show erosion of medical scheme benefits
By Martin Rimmer CEO of Sirago Underwriting Managers
An analysis of the top 20 gap claims (by rand value) paid by Sirago Underwriting Managers during 2024 highlights an alarming reality for medical scheme members – the erosion of medical scheme benefits is resulting in members facing huge financial shortfalls for in-hospital treatment not covered by their medical scheme benefits. Without gap cover in place, these 20 claims alone would see these medical scheme members having to collectively pay R3m from their own pockets for in-hospital treatment. In many instances, the gap provider is paying more than the medical scheme – a complete misalignment if one considers the significant difference in premium/ contribution between the two.
Gap cover is a supplementary insurance to a medical scheme benefit that covers the difference that arises from the rate that healthcare specialists charge for inhospital procedures versus what a medical scheme pays.
A breakdown of Sirago’s 20 mega gap claims paid in 2024 shows that:
• Of these 20 gap claims, all shortfalls were more than R100 000, while three reached the maximum overall annual limit of R191 000 that a gap policy may cover, per member.
In almost half of the claims, gap cover paid more than the medical scheme paid. In one instance, gap cover paid R126 771 while the medical scheme paid just R27 573 – just 18% of the entire treatment bill was paid by the medical scheme. Of the total healthcare cost across all
20 claims, gap covered 40% of the total cost, while medical schemes covered only 60% of the total costs for in-hospital treatment.
“These are massively concerning statistics and demonstrate just how financially devastating the shortfalls are for in-hospital treatment that medical schemes are not paying for. It is indicative of how medical scheme benefits are being eroded as schemes try to limit premium increases –members are getting less cover and lower benefit limits, despite the premium increases in their medical scheme benefit every year.
Secondly, specialist fees and healthcare cost inflation is out of control and certainly not aligned with what schemes or consumers can afford. In the absence of any price regulation, and the absence of any competition as medical specialists are in short supply, things can only get worse. Providers are free to charge any rate they wish, often many more times the rates that medical schemes reimburse at,” explains Martin Rimmer, CEO of Sirago Underwriting Managers.
This continued acceleration of mega claims is putting the premium under pressure, which inevitably will result in high premium increases every year. Sirago points to its gap claims trends over the last four years, which clearly demonstrate that being on a medical scheme option – even a comprehensive one – is no guarantee that your bills for in-hospital treatment will be paid for in full by your medical scheme. And the shortfalls are growing rapidly in financial quantum.
“Of these 20 mega claims alone, the shortfall paid by gap cover was between R120 000 to R191 000. These are huge
numbers that very few people can afford to fork out from their savings,” adds Rimmer.
Healthcare financial planning is critical
Medical scheme members will have until the end of November to make any changes to their medical scheme options, which will take effect from 1 January 2025. Given the affordability constraints, many are looking to cut back but still want access to private healthcare for any hospitalisation or serious health crisis they may face in future. Sirago advises that you work with your professional healthcare financial advisor to do the sums, take you through a comparison of the various benefit options, and then devise the best plan to ensure your healthcare needs and access to private healthcare are covered, as best possible.
“If you’re on a medical scheme benefit, then adding gap cover to your healthcare plan is a non-negotiable if you want to protect yourself from shortfalls on inhospital treatment and specialist charges, which can be anything from a few thousand rand to over R190 000. If you’re on a medical scheme option that covers 100% or 200% of tariff charged, you are going to face shortfalls when you consider that many specialists charge upwards of 500% of the medical scheme tariff. You will be liable to pay those shortfalls from your own pocket if you do not have gap cover. Make sure to discuss this with your healthcare advisor.
“Always engage the advice and services of an accredited, skilled, and experienced healthcare broker/advisor who will help you make informed decisions when needed most, as well as support you through the administration processes with getting your cover in place,” concludes Rimmer.
“In many instances, the gap provider is paying more than the medical scheme - a complete misalignment”
Amplify funds outperform at 10-year milestone
Two of Amplify Investment Partners unit trusts have reached a 10-year milestone, boasting a long-term track record of outperformance.
The Amplify SCI* Defensive Balanced Fund and the Amplify SCI* Strategic Income Fund have exemplified and proven Amplify’s strategy of producing exceptional performance through active management by agile, independent managers, says Amplify Head Marthinus van der Nest. “We are proud to be able to show such consistency and outperformance over the long term.”
While Amplify is effectively only six years old, the funds were born and spun out of Sanlam Investments’ Blue Ink Investments, under the Sanlam Select Funds range. These funds were moved into Amplify Investment Partners, which launched in 2018 with R7.8bn assets under management.
It has since grown assets under management by 580% to R53bn in eight local and offshore (USD and ZAR) unit trusts and seven hedge funds.
“Our growth in AUM is a true testament to the strong and mutually successful relationships we have
with our partners and clients,” says Amplify’s Head of Retail Distribution Nico Janse van Rensburg.
Amplify’s managers use their hedge fund skills and active tactical mindsets to produce exceptional returns while protecting on the downside.
Managed by Matrix Fund Managers, the R5bn Amplify SCI* Defensive Balanced Fund is a stable, low equity multi-asset solution for cautious investors with a three-year investment horizon aiming to produce income while preserving clients’ investment in real terms, with lower volatility over the medium term, which is borne out in its performance. It invests in a combination of equities, money market instruments, bonds, listed property, international equities and fixed interest assets, with a maximum of 40% in equities.
Matrix incorporates a truly unconstrained active allocation mindset with forward-looking scenario planning that seeks to generate consistent inflationbeating returns with a higher probability, by avoiding large downside risk.
1: The Amplify SCI* Defensive Balanced Fund has recorded annual returns of 8.92% against ASISA’s SA multi-asset low equity peer group of 7.09%. Above-average market returns are also evident over five years (9.93% against a multi-asset low equity benchmark of 8.29%), three years (9.6% compared to 8.47%) and one year (13.45% against 12.33%).
Source: Morningstar as at 31 August 2024.
Table 2: The Amplify SCI* Strategic Income Fund has returned 8.42% annually against the STeFI plus 1 benchmark of 7.61% and ASISA SA multi-asset income peer group of 7.48%. Over five years, it has produced returns of 8.97% (against a 7.10% benchmark and peer performance of 7.40%) and over three years, it has delivered 9.06% against the benchmark return of 7.75% and peer group’s 7.98%. Over the last year, the fund has delivered 13.16% against the benchmark of 9.56% and 10.92% performance of peers.
Source: Morningstar as at 31 August 2024.
“Partnering with Amplify has been a very constructive endeavour, both for our mutual clients, whose investment objectives have been met or exceeded over multiple time horizons, and in supporting our diversification from a hedge fund manager into a broader product range asset manager,” says Lourens Pretorius, co-CIO at Matrix Fund Managers and co-portfolio manager of the Amplify SCI* Defensive Balanced Fund.
The R17bn Amplify SCI* Strategic Income Fund is an actively managed, flexible fixed interest solution for conservative investors with a twoyear investment horizon, aiming for investment preservation and diversification across highyielding asset classes for downside protection. The fund is managed by Terebinth Capital, which combines macro analysis and quantitative precision for asset allocation. They subscribe to the theory of cycles. Using scenario analysis, they construct diversified portfolios of highquality, highly liquid assets that always reflect their best-investment view. Their active approach incorporates a disciplined risk management.
Erik Nel, CIO of Terebinth Capital and coportfolio manager of the Amplify SCI* Strategic Income Fund, says that “it has been a rewarding journey, and we are grateful for the opportunity initially offered to us in 2013 at Terebinth Capital’s launch, to kick off the Sanlam Select product set. The partnership with Amplify continues to grow roots with further success now also in the hedge fund space, proving the value and synergies to be had in these arrangements.”
The value and synergies have weaved through into Amplify’s track record. “Over the 10 years, our managers have continued to use their hedge fund DNA and active management expertise and mindset while finetuning their strategies and asset allocation to take advantage of investment opportunities,” says Janse van Rensburg.
“The funds’ managers have different strategies and viewpoints, both producing excellent and consistent results,” adds Van der Nest. “This speaks to the long-term partnership we have with their managers. It also speaks to the success of our strategy of choosing and working closely with actively managed boutiques with skin in the game. The results speak for themselves, and we are excited about their future.”
Table
Nico Janse van Rensburg, Head of Retail Distribution, Amplify
By Adriaan Pask PSG Wealth Chief Investment Officer
South Africa’s unit trust industry is changing
Anoteworthy shift is occurring in South Africa’s unit trust sector. While some larger managers are experiencing modest outflows, mid-sized managers are seeing substantial inflows on the back of strong performance. Investors are also gravitating towards balanced and multiasset portfolios, showing a growing preference for ESG-compliant funds and domestic equity. This trend is also evident in the move towards domestic equity within the listed property sector, reflecting both evolving market dynamics and the performance of managers in these spaces.
The Covid effect
Inflows into the unit trust sector remained relatively strong before the Covid-19 pandemic. However, as the pandemic unfolded, investor sentiment took a hit, leading to a slowdown in new investments. According to the Association for Savings and Investment South Africa (ASISA), there has been a downward trend since then, with the most recent data for Q2 2024 revealing a net outflow of R24.9bn in assets for the period. The industry remains substantial, with R3.4tn in assets by the end of the second quarter of 2024.
Equity on the rise
This indicates that the investment climate in South Africa has been subdued. However, it’s important to note that the data reflects the period leading up to the election, when caution was high. Since then, the equity market has shown improvement, and it is expected that investment flows will recover as political uncertainty eases and anticipated interest rate cuts come into effect, likely boosting sentiment. There are sector-specific nuances to also consider. Unit trust categories vary, encompassing high, medium, and full equity, property and cash mandates. Notably, the multi-asset space remains highly favoured, with funds that can invest in a diverse range of assets – locally and offshore, including fixed income and equities – continuing to attract significant attention.
Fixed income still a focus
Following closely behind is the equity general sector, where managers solely focused on equity mandates have shown solid progress. Interestingly, during the period of economic and political uncertainty, there was minimal investment in long-term focused mandates, which include some equity exposure. The preference leaned heavily towards interestbearing mandates, reflecting the prevailing
concerns. The unfortunate truth is that, despite the recent market recovery, many investors remain heavily invested in fixedincome or fixed-interest assets. This highlights the importance of maintaining a long-term investment strategy, as it’s impossible to predict exactly when equity markets will rebound.
Wealth managers who encourage clients to adopt a long-term perspective and remain invested in mandates aligned with their risk profile, even if they have slightly more equity exposure, are providing valuable guidance.
Diversification remains essential
The rise in flexible categories and offshore equities also reflects the growing tendency of investors to seek international opportunities or hedge against domestic market volatility. Flexible funds, as their name suggests, allow for greater adaptability, enabling managers to adjust their asset allocation in response to changing market conditions. This strategic manoeuvring can range from conservative positioning to more aggressive stances depending on the economic landscape, offering a safeguard and potential upside in uncertain times. It’s a clear sign that investors are prioritising both diversification and a degree of protection in their portfolios.
Long-term performance
Taking a step back, there are two main factors influencing short-term performance. Firstly, changes to Regulation 28, which dictates the offshore exposure limits for pension funds, have substantially increased offshore limits over the last two decades. Investors who allocated significant capital to offshore equities during this period generally saw better returns. However, there’s been a notable shift recently.
Over the three months ending in August 2024, South African bonds have outperformed all other asset classes, delivering a 12% return, followed by South African equities at 9.6%. Global equities, in contrast, lagged with a modest 0.6% return. This highlights the importance of portfolio diversification and timing. Investors who stayed heavily invested in offshore assets might be seeing a reduction in alpha gained in previous cycles as local asset classes regain traction.
“Over the three months, South African bonds have outperformed all other asset classes”
Going forward, a stronger focus on the local market from fund managers is expected, and we’re already seeing early signs of this shift. The equity sector has displayed a notable divergence in performance across industries. Financials, for example, surged over 27.2% in the past three months, while resources took a hit, falling by 8%. Performance isn’t just about individual managers, it’s about their sector positioning. Financials, and particularly property, which has climbed nearly 20% in three months and nearly 40% over the year, have been key drivers. These sectors, traditionally considered SA Inc stocks, have been out of favour for years. However, recent returns confirm that our belief in their long-term value is paying off.
Currency matters
Additionally, the currency played a role: the rand strengthened by approximately 6% to the US dollar since elections in May 2024. Managers who leaned into local value, shedding expensive offshore assets, have benefited from this shift. Navigating the rand-hedge stocks has also been tricky. Traditionally, these assets have provided a cushion when the currency weakens due to negative news. However, with the rand strengthening, many of these hedges have underperformed, creating a more challenging environment.
Overall, we’re seeing managers pivoting toward the domestic market over the medium term, dialling back offshore exposure, and favouring cyclical sectors that are benefiting from the current environment.
Adding return and lowering risk with private assets
By
Duncan Lamont Head of Strategic Research, Schroders
Private assets bring several advantages to portfolios, from return enhancement, to income, to reduced risk, to diversification via differentiated drivers of returns. But increased demand means investors should seek out less crowded markets. Access to deals and focus on inefficient markets are critical to identifying attractive investment opportunities.
The growth of private assets
Private assets have seen a dramatic rise in assets under management (AUM), growing from $700bn in 2001 to an astounding $13.6tn by mid-2023. Although this is still small relative to the $86tn market size of the combined public equity, corporate, and high yield bond markets, private market growth has been much faster. Their near-20-times increase in size dwarfs the three-times rise in the size of the global public equity and corporate bond markets over the same period. As this only covers funds, rather than separate mandates or individual investments, the true size of the private market universe is even larger. Private markets’ growing scale means investors cannot afford to ignore them when making asset allocation decisions.
Institutional investors have been responsible for the lion’s share of the demand, with average allocations to private assets rising from 17% a decade ago to 27% at the start of 2023.
“Private assets are generally more complex and illiquid, which tends to make them cheaper investments”
The main attraction
There are several benefits that make private markets attractive. Firstly, the capacity to generate higher returns. Both private equity and private infrastructure, for example, have delivered higher returns historically when compared to public equity and infrastructure markets. One of the reasons for this is the proximity of private equity managers to their investee businesses, which allows them to directly influence operations and strategic decisions for better outcomes.
Another aspect that supports higher returns is price. Private assets are generally more complex and illiquid, which tends to make them cheaper investments.
Income generation is another key advantage, especially when it comes to private assets such as private debt, infrastructure investments and real estate. These asset classes can provide stable cashflows, which provides an attractive option for investors looking for income options.
Additionally, private assets can reduce portfolio risk through diversification. Exposure via public markets is decreasing at a rapid rate as the delisting trend continues around the globe. Public markets are therefore providing exposure to an increasingly narrow subset of older, more mature companies. Investors focused solely on public markets risk missing out. Furthermore, if high-quality companies are turning their backs on the public market, the risk is that the quality of the market deteriorates over time.
Overcoming the hurdles
Increasing demand for private market assets, while encouraging, has led to more competition in the space. Increased interest in private assets has led to large amounts of capital being raised in the past decade. ‘Dry powder’, money raised but not yet invested, has hit record highs. High fundraising runs the risk of too much money chasing the same deals, higher prices being paid, and lower future returns.
Better opportunities for investors can be found in less crowded markets and by leveraging the credibility and reputation of experienced investment managers to gain access to deals that others may miss. Deal access has become one of the most important edges that a successful investor can lay claim to. Smaller or more complex transactions, such as family-run business buyouts, often present better opportunities compared to highly competitive largescale deals.
In private debt, structuring is an essential skill, which presents a barrier to entry. This is especially true when dealing in less crowded areas where structure means more than just covenants. It may mean ‘matched term financing’ or ‘special purpose vehicles’ or ‘tax blockers’. Anyone can buy a corporate bond, but not everyone can draft, understand, and negotiate complex legal agreements.
Why manager selection counts
One consequence of the greater scope for private asset managers to steer their investments is a wider dispersion of returns than is typical in public markets.
The difference in return between top and bottom quartile buyout funds globally has been around 15%, on average. Manager selection is more important when investing in private assets.
Private assets a powerful tool
Private markets offer a rich variety of investment options that can diversify and enhance risk and return for investors. With their growing clout, more and more financing is taking place privately. Investors focused solely on public markets risk missing out. There is no shortage of attractive opportunities, but with increased interest has come increased competition. Investors should seek out less crowded markets to benefit from the return and risk enhancement that private assets can offer.
Sources: LSEG Datastream, NCREIF, Preqin, and Schroders.
By Anton Eser Chief Investment Officer at 10X Investments and Manager of the 10X Income Fund
Multi-asset income funds are a winner, but have risks
Multi-asset income funds are seen as lowrisk unit trusts, but that doesn’t mean they are risk-free. How the fund manager deals with those risks should be one of the most important considerations for any investor.
“We are very focused on risk management,” says Anton Eser, Chief Investment Officer at 10X Investments and Manager of the 10X Income Fund. “We know that capital preservation is a top priority for income fund investors, and we never want to incur a loss of capital.”
The fund is therefore conservatively managed, but still delivers a high level of income. It has dual objectives of providing a return of 2.5% ahead of inflation, and 1% above the money market over any three years.
Since its inception in November 2022, it has achieved both of those goals. “We have twin objectives, because we want to make sure that we give investors real returns, and we want to outperform what they could earn from cash,” Eser says. The fund invests across a portfolio of fixed-income securities, including government bonds, money market instruments and corporate bonds. It can also invest up to 30% offshore. In line with its risk-conscious approach, the fund does not invest in equities or listed property, even though those are allowed in funds in this category. “We are very focused on long-term asset allocation,” Eser says. “We are not stock pickers, and we are not tactical asset allocators trying to time the market.” In positioning the fund, 10X Investments considers the valuations of all the available asset classes in the income space. To get a long-term view, it uses the cyclically adjusted price-to-earnings ratio (CAPE ratio), which smooths out earnings over the past 10 years.
“We then look at five years and estimate, based on current valuations and some degree of mean reversion, what the likely returns from different asset classes will be,” Eser said. “That gives us an idea of where we should be allocating, but we only make the final decision after thinking very hard about the potential risks.”
For example, the 10X Investments income fund currently holds almost no corporate credit, either locally or internationally. There is an opportunity to pick up high yields; however, Eser believes that the risks are too high.
The number of companies defaulting on their debt has been picking up in the US and Europe, and South Africa also experienced the default of credit instruments linked to the taxi industry. “Given where we are in the credit cycle and how low the risk premium is to hold credit, we don’t think this is the right time to own credit in an income portfolio,” Eser says.
“The average income fund in the local market has around 30% to 40% invested in credit. We think that doesn’t make any sense, given that you can build a relatively high-quality portfolio without it that is still generating a yield of 10%.”
The yield to maturity on the 10X Income Fund is currently 9.8%. And over the past year, the fund has delivered a total return of 11.3%. “In the investment industry, often you think you have to be busy by investing in different asset classes or bringing in different instruments. But at some times in a cycle, keeping it simple is the best thing,” Eser says. “And in the income space right now, keeping it simple is the best thing.” The fund is currently generating attractive real yields, mainly from nominal and inflation-linked bonds in South Africa.
Eser particularly likes the opportunity in inflation-linkers. These make up 30% of the
“We know that capital preservation is a top priority for income fund investors”
portfolio and are offering yields of inflation + 5% to inflation + 6%. “For a portfolio looking to generate CPI + 2.5%, this is a fantastic opportunity,” Eser says. The portfolio also holds close to 30% in South African nominal bonds.
“Since this fund looks at a three-year outcome, we limit duration in the portfolio at three,” Eser said. “And for pretty much the last six months, we have been close to that.” The bulk of the remainder of the portfolio is in short-dated money market-type instruments – around 20% in South Africa and 15% offshore.
“When we invest internationally, by default we hedge out the currency risk,” Eser says. “We don’t think investors should be exposed to the volatility of the rand in an income portfolio. We want to lock in the yields we are getting in international markets, without the risk of the rand moving against us.”
With interest rates likely to start coming down both in the US and South Africa in the coming months, the fund has locked in some attractive yields that will deliver returns for investors for some time. However, as the environment changes, the fund will also adapt.
“As real yields come down, the trade-off between holding inflation-linkers and holding credit changes,” Eser says. “When we see those dynamics and we are no longer generating inflation + 5% from a very simple approach, we will need to think about other ways we can introduce yield into the portfolio.”
By
Reza Ismail Head of Bonds, Prescient Investment Management
Unlocking consistent alpha
Portable alpha investment strategies emerged in the late 1980s and early 1990s as an innovation within institutional portfolio management, driven by the increasing demand for investment approaches that could generate excess returns, or ‘alpha’, independent of marketrelated risk exposures, generally referred to as ‘beta’. Strictly speaking, alpha is the return that is not explained by the beta-adjusted return.
The conceptual foundation of portable alpha lies therefore in the separation of these ‘alpha’ and ‘beta’ components, enabling investors to achieve market returns through managed beta exposure while simultaneously pursuing alpha generation through alternative, and preferably uncorrelated, investment strategies.
This bifurcation allowed for greater flexibility and diversification in portfolio construction, aligning with modern portfolio theory’s emphasis on uncorrelated return sources to optimise risk-adjusted returns. The development of portable alpha strategies coincided with advancements in financial derivatives, particularly the proliferation of futures contracts, swaps, and repo strategies that provided mechanisms for efficient beta management.
“A thorough understanding of the mechanics around taking synthetic exposure is critical for the overall success of the proposition”
Prescient Investment Management (PIM) has for a long time employed portable alpha strategies in certain of our fund propositions wherein the base assumptions for price formation in the asset market relate to the strong forms of market efficiency. If an asset market is void of opportunities to harvest alpha in a scalable, repeatable and coherent fashion – for PIM the South African equity space is such an example – then the best course of action would be to replicate the entire market (i.e. buy beta) as cheaply and efficiently as possible, while harvesting alpha from an uncorrelated source. This is precisely the mechanism we have employed in our equity offerings for more than a decade.
Regarding the South African fixed income space, our historical assessment has been that there are indeed opportunities to harvest alpha via tactical decisions relating
to predicted changes in the level, slope and curvature of the South African term structure of rates, along with circumspect instrument selection in credit markets. The decision to introduce a portable alpha proposition within the SA Bond space therefore does not relate to the absence of harvestable alpha in the fixed income market, but rather to offer an alternative product for investors seeking an SA bond return profile that minimises benchmark-relative risk, while delivering a stable and predictable alpha profile from uncorrelated sources.
The Prescient Portable Alpha Bond Fund provides systematic exposure to the All-Bond (ALBI) Index (beta component) while also offering exposure to an optimised alpha portfolio that aims to produce an additional 1.0% before fees. The alpha portfolio has been systematically optimised across various risk metrics, including tracking error, expected shortfall, and generates a low-volatility income-asset-like portfolio that has the highest statistical likelihood of outperforming the associated funding costs of the strategy.
Another motivation for the SA portable alpha bond proposition is purely empirical: examining typical ALBI-cognisant manager performance survey tables reveals several generalisable characteristics of the data, which helps to position the product.
The first is that the annualised return dispersion among SA bond managers generally decreases as the measurement period increases. That is, very simply: the average deviation from the overall survey mean decreases as the measurement period increases.
Secondly, the quantum of annualised outperformance from a given index (in this case the ALBI), tends to be fairly pedestrian as the measurement period increases. By way of example, looking at 10-year SA nominal bond performance tables reveal that in order to rank in the 90th percentile of outperformance, an SA bond manager would only need to have an annualised outperformance of 40bps over the ALBI net of fees.
Combining these observations, over the long term one could say that SA bond returns between managers start to look remarkably similar, and the annualised quantum of alpha (relative to the ALBI) for even the very best of these managers is not particularly sizeable. If one could therefore manufacture an SA bond performance profile of ALBI+1.0% p.a. before fees in every calendar year, this would automatically see such a proposition drift towards the very top of performance survey tables as the measurement period moves beyond the initial (noisy) few years.
Aside from the projected competitiveness based on the arguments above, the segment of the market which the Prescient Portable Alpha Bond Fund would emphatically like to target is the purely passive ALBI tracker space. If one accepts that the best possible outcome a pure ALBI tracker could ostensibly deliver is the underperformance of ALBI each year by the quantum of manager fees, then a proposition that offers ALBI + 1.0% before fees each year with extremely high predictability and very low tracking error, becomes very compelling for investors in that space.
The performance of a portable alpha process is by construction highly pathdependent, and notwithstanding its conceptual simplicity, there are several obstacles that could potentially derail the strategy. It is fair to say that the strategy relies heavily on several interconnected cogs working in well-synchronised fashion to keep the overall machine moving appropriately.
Some of these obstacles relate to having the requisite liquidity in both the beta and alpha segments, being cognisant of bid/ offer spreads, and carefully curating the alpha portfolio with genuinely uncorrelated exposures to the beta segment. What may conceptually look like an attractively engineered solution, may of course not work in practice. We note also that the alpha portfolio is typically ‘funded’, and this means that ‘unfunded’ (synthetic formats) will be needed elsewhere, such as the ability to short beta through futures or repo transactions. A thorough understanding of the mechanics around taking synthetic exposure is critical for the overall success of the proposition.
PIM, given our systematic expertise and strong legacy in fixed income markets, is in many respects the ideal manager for effecting SA Bond portable alpha strategies. While the overall ideas around portable alpha investment strategies are not very conceptually taxing, they nonetheless require expertise at every facet of the process and, very importantly, the overall success of the proposition depends heavily on the robustness around the construction of the alpha portfolio.
By Stu Bradley Senior Vice President of Risk, Fraud and Compliance Solutions at SAS
1
Insurance has five problems, and AI isn’t one
While billions trust their lives and livelihoods to insurers every day, the insurance sector itself is facing an existential crisis. Record losses due to more frequent and severe natural disasters have skyrocketed premiums and deductibles. Carriers face significant backlash as policyholders scramble to find coverage in abandoned, high-risk markets. Meanwhile, analysts warn that the rate hikes and non-rate underwriting actions taken to navigate these market conditions will prove unsustainable in the long term.
In search of workarounds, some insurance leaders pinned hopes on the generative AI (GenAI) boom for quick fixes. However, allegations of faulty algorithms rendering unfair denials have fuelled critics, who claim that AI has become just one more problem.
The truth is more nuanced. While insurance leaders will certainly encounter obstacles, AI itself isn’t the problem. Rather, organisations’ understanding of their data and the potential unintended consequences of AI is the root of the issue. With the appropriate ethical guardrails and human oversight, trustworthy AI is a solution.
At this potential turning point, experts from SAS have examined and offered insights on the top five insurance problems:
Data chaos awaits law and order
When data points align with private personal details, the current lack of legislation and regulation governing the use of artificial intelligence can feel unsettling – especially for an industry so steeped in compliance and regulatory reporting. Language in the EU AI Act, China‘s Interim Measures, and the NAIC AI Model Bulletin are among the first efforts to establish AI guardrails in insurance, but with the regulatory landscape in flux, insurers and insurtechs are stepping into the breach with proposals for self-governance.
“To set the stage for meeting regulatory standards yet to come, the insurance industry, like the banking sector, must prioritise data lineage and governance within its AI capabilities,” said Prathiba Krishna, AI and Ethics Lead for SAS UK and Ireland, who helped author the voluntary AI Code of Conduct for claims. “As important as it is for insurers to extract valuable insights from their large datasets, it’s equally important to cleanse this data of errors and inconsistencies. This helps ensure reusability, improve decision-making accuracy, boost productivity, and reinforce reliability of results.”
3
Indemnification tunnel vision stalls progress and partnership
A paradigm shift is brewing in insurance – that is, if the industry can reach the required critical mass. The tech sector foresees carriers evolving from reactive indemnifiers to proactive partners with their policyholders, consumers and businesses alike.
Consider the following use case: the World Health Organisation (WHO) recently reported a staggering proportion of health events – over 30% of global cancer deaths and 80% of chronic diseases – are tied to preventable habits. Meanwhile, insurers already collect extensive health data on their customers to offer appropriate coverage. Why not put this data to use?
“Through existing channels like smartphone apps, insurers could offer customers the opportunity to opt in to AI-powered health coaching, delivering tailored advice that reinvents the conventional customer experience – and reduces policy payouts,” said Alena Tsishchanka, Senior Insurance Practice Leader for EMEA and AP at SAS.
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2 AI overload strains risk management
Amid the industry’s rapid digitalisation and the explosive growth of AI and generative AI, risk managers are rightly concerned about the unintended consequences of robot algorithms. Prototyping may look promising, but production AI requires robust infrastructure to ensure responsible and safe deployment.
“Insurers must delve deeper into the importance of integrating AI into existing systems within context while aligning with an enterprise AI strategy with strong governance,” said Terisa Roberts, Global Lead for Risk Modelling and Decisioning at SAS, and author of the book Risk Modeling: Practical Applications of Artificial Intelligence, Machine Learning, and Deep Learning.
“Insurers must also consider the broader scope of GenAI use cases beyond large language models.”
Hidden digital risks require centralised solutions
With near-ubiquitous smartphone technology, an insurer today can reach markets wherever wireless exists. For insurers looking to offset premium increases for customers, investing in digital migration helps put modern offerings for modern customers on the market.
However, to compete in this digital marketplace, insurers must offer increasingly individualised products and services to policyholders. The appeal of these tailored offerings and ease of signing up online has lured a slew of potential customers, which has proven a blessing and a curse.
Carriers are inundated by the volume and speed of applications. Unfortunately, in the race to approve or deny coverage, insurers don’t have enough time to properly research and identify clientele most likely to commit fraud or who fundamentally pose unwanted risk. Therefore, the insurer will generally absorb these customers – and the risk they pose.
Mounting the technological infrastructure to accurately identify fraud and other threats en masse still thwarts legacy carriers and insurtechs alike. And both insurance fraud and the underwriting of unwanted risks means an increase in the insurer’s loss ratio and combined ratio and, ultimately, increases insurance premiums for customers.
“When insurers centralise and integrate the tasks of actuaries, underwriters and fraud analysts, it helps ensure the carrier can make a profit with risk-appropriate customers, while serving and protecting customers exactly as they need, and at a price that does optimum justice to all parties,”
said Thorsten Hein, Insurance Lead in Risk, Fraud and Compliance Solutions at SAS.
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Life insurance: Newly vulnerable, but still vital
Life insurance is a perfect microcosm of much of what plagues the insurance industry. Life insurers have long depended on commercial real estate for profitability. Since the Covid-19 pandemic, however, the value of these assets has nosedived. This subset of the industry needs to create new opportunities.
“When we talk about an insurable interest, not everyone needs to protect an asset like a car or a home – but everyone has a life,” said Franklin Manchester, Principal Global Insurance Advisor at SAS. “Health data organisations forecast global life expectancy will increase to more than 78 years by 2050. With growing risks in a world in polycrisis, life insurers have a part to play in driving positive change.” Today, by incorporating cleansed data, with pricing decisions made within principled frameworks, and with the global outreach of digital platforms, insurers can reach, educate and protect more people, potentially breaking multi-generational cycles of suffering.
Insurance sector shows positive growth and stability
By Mark Danckwerts Partner and Africa Insurance Practice Leader at KPMG
KPMG South Africa annual South African Insurance Industry Survey for 2024 was released recently. It’s the 26th anniversary edition, and surveyed 27 nonlife insurers, 17 life insurers, and four reinsurers. This year’s results reflect a strong recovery compared to those experienced in 2022, reflecting the stabilisation of the insurance market.
“The constrained macroeconomic environment, uncertainty around the frequency and severity of natural disasters as a result of climate risk, and ongoing geopolitical conflicts have continued to influence the results of the insurance industry,” says Mark Danckwerts, Partner and Africa Insurance Practice Leader at KPMG.
“This resulted in changes to the demand for insurance products, costs of insuring risks, and enhanced risk management initiatives being employed in responding to the dynamic risk environment. However, despite these factors, the insurance sector at large reflected positive results for 2023. As the industry looks forward, insurers are expected to continue to apply a cautious approach to risk management. We can also expect to see an increased use of new and emerging technologies, including artificial intelligence, and the reassessment of risk management strategies and operating models.”
Non-life insurance industry
The non-life insurance industry saw growth of 16.6% in IFRS 4 gross written premium and 7.9% growth in IFRS 17 insurance revenue.
However, this sector was significantly impacted by rising claims costs over 2023, largely driven by systemic loadshedding, an increasing number of motor vehicle accident claims, and rising
motor vehicle repair costs. This experience was compounded by disposable income pressures on consumers and high crime levels.
Relative to the previous year, 2023 was considered stable in respect of weather-related catastrophe events.
“Insurers have had to respond swiftly with adjustments to policies, premiums, and risk management strategies to maintain their financial stability, with the outcomes of these initiatives clearly reflected in the 2023 results,” continues Danckwerts.
“It is great to see that despite the challenges experienced, the non-life insurance industry went from a loss of R16.7bn in 2022 (driven significantly by the political unrest and flooding in KwaZulu-Natal) to a profit of R13.7bn in 2023. While reinsurance rates hardened over the period and inflationary and interest rate pressures persisted, exposure to natural catastrophe events was muted compared to that experienced in previous reporting periods – improving results dramatically,” states Danckwerts.
Life insurance industry results
Like the past two years, the results of the life insurance industry for 2023 highlight the underlying resilience of the global and local economies. This year’s results indicate doubledigit growth improvements in profitability, and a higher-than-expected return to shareholders than predicted.
The largest insurance groups in the country all showed significant growth over the past financial year. The life insurance industry continued to generate profitable results, with an increase in profits from R27.3bn in 2022 to R37.4bn in 2023.
“These results are reflective of the return to normal mortality levels post the Covid-19 pandemic and the relatively robust performance of investment markets,” continues Danckwerts.
Life insurers experienced growth of 10.4% in IFRS 4 net premium income and 3.9% growth in IFRS 17 revenue.
We can attribute this success to the following key trends:
Continued focus on the personalisation of insurance products
• Risk mitigation measures, particularly in the non-life insurance industry
M&A activity within multinational groups Investments into certain countries in East Africa and Asia
• Attention to capital management and balance sheet optimisation
• Strongly capitalised businesses with sufficient liquidity, improving cash generation Cost-containment measures, contrasted with a deliberate focus on capital deployment for project spend.
Reinsurance industry results
“Insurance revenue declined slightly by 2% over 2023, with varied results being experienced across all reinsurers surveyed. However, we are beginning to see a restoration of profitability and balance sheet strength through price increases and the implementation of stricter underwriting principles,” states Danckwerts.
We noted mixed performance results across all reinsurers surveyed, reflecting the complexity and nuances of market dynamics on each reinsurer’s business operations. Munich Re and Hannover Re continue to lead the reinsurance market with a combined market share of 80% (2022: 81%) measured by insurance revenue.
Looking at the split of insurance revenue between the life and non-life insurance results, Munich Re and Hannover Re are leading the life insurance market with a combined market share of 88% (2022: 88%), with Munich Re and Africa Re leading the non-life insurance market with a combined market share of 81% (2022: 84%).
Reinsurers achieved an average return on investments (including cash and cash equivalents) of 7.07% despite the year-onyear increase in investments, cash and cash equivalents of 14%. The investment performance of reinsurers surveyed relative to market returns is indicative of the conservative investment strategies employed.
“South African reinsurers can be expected to continue with a cautious approach in 2025.” says Danckwerts.
