What Is the Asia-Pacific Economic Cooperation (APEC)?

The Asia-Pacific Economic Cooperation (APEC) is an economic group of 21 members, formed in 1989, with the primary goal of promoting free trade and sustainable development in the Pacific Rim economies.

Understanding the Asia-Pacific Economic Cooperation (APEC)

APEC’s principal goal is to ensure that goods, services, capital, and labor can move easily across borders. This includes increasing custom efficiency at borders, encouraging favorable business climates within member economies, and harmonizing regulations and policies across the region.

The creation of APEC was primarily in response to the increasing interdependence of Asia-Pacific economies. The formation of APEC was part of the proliferation of regional economic blocs in the late 20th century, such as the European Union (EU) and the (now-defunct) North American Free Trade Agreement (NAFTA).

Nations Comprising APEC

The founding members of APEC were Australia, Brunei, Canada, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and the U.S. Since its launch, China, Hong Kong, Taiwan, Mexico, Papua New Guinea, Chile, Peru, Russia, and Vietnam have joined its ranks.

APEC refers to its members as economies rather than as states due to the focus on trade and economic issues rather than the sometimes delicate diplomatic issues of the region, including the status of Taiwan and Hong Kong. The People’s Republic of China (PRC) refuses to recognize Taiwan because it claims the island as a province under its constitution. Hong Kong, meanwhile, functions as semi-autonomous regions of China and not a sovereign state.

Official observers of APEC include the Association of Southeast Asian Nations (ASEAN), the Pacific Economic Cooperation Council (PECC), and the Pacific Islands Forum (PIF).

The Asia-Pacific Economic Cooperation’s (APEC) Actions and Goals

At a landmark summit meeting in 1994, APEC announced a lofty goal of establishing free trade and investment regimes in the Asia-Pacific region by 2010 for members with developed economies. The group hoped to achieve those same goals for its developing economy members by 2020.

In 1995, APEC adopted the Osaka Action Agenda, a program designed to facilitate business activities, liberalize trade and investment and promote economic and technical cooperation. However, progress on these efforts has somewhat slowed, due to APEC’s culture of making all decisions by consensus. While some decisions are unanimous, they are not legally binding on the member governments.

Sub-Groups of APEC

APEC maintains a policy support unit to provide research and analysis to support the organization’s goals for the region, as well as special working groups to explore and promote various issues and components of economic development. These groups engage in multiple micro causes that aim to advance policy and awareness. Examples of these sub-groups include:

• Gender Issues: APEC sponsors a policy partnership on women and the economy to advance the economic integration of women. An estimated 600 million women are currently in the region’s labor force.
• Intellectual Property Rights: APEC’s Intellectual Property Rights Experts’ Group (IPEG) studies and exchanges information regarding the enforcement of intellectual property rights protections in the region. It promotes and facilitates cooperation to implement the World Trade Organization’s (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
• Emergency Preparedness: APEC’s Emergency Preparedness Working Group (EPWG) promotes business resilience, public-private partnerships, and information sharing among members to help build the region’s capacity to deal with emergencies and natural disasters. Economies along the geologically and climatologically active Pacific Rim are subject to events such as tsunamis, typhoons, earthquakes, and volcanic eruptions.

What Is Anchoring and Adjustment?

Anchoring and adjustment is a phenomenon wherein an individual bases their initial ideas and responses on one point of information and makes changes driven by that starting point. The anchoring and adjustment heuristic describes cases in which a person uses a specific target number or value as a starting point, known as an anchor, and subsequently adjusts that information until an acceptable value is reached over time. Often, those adjustments are inadequate and remain too close to the original anchor, which is a problem when the anchor is very different from the true answer.

Understanding Anchoring and Adjustment

Anchoring is a cognitive bias described by behavioral finance in which individuals fixate on a target number or value—usually, the first one they get, such as an expected price or economic forecast. Unlike the conservatism bias, which has similar effects but is based on how investors relate new information to old information, anchoring occurs when an individual makes new decisions based on the old, anchor number. Giving new information thorough consideration to determine its impact on the original forecast or opinion might help mitigate the effects of anchoring and adjustment, but the characteristics of the decision-maker are as important as conscious consideration.

The problem with anchoring and adjustment is that if the value of the initial anchor is not the true value, then all subsequent adjustments will be systematically biased toward the anchor and away from the true value. However, if the anchor is close to the true value then there is essentially no problem.

One of the issues with adjustments is that they may be influenced by irrelevant information that the individual may be thinking about and drawing unfounded connections to the actual target value. For instance, suppose an individual is shown a random number, then asked an unrelated question that seeks an answer in the form of an estimated value or requires a mathematical equation to be performed quickly. Even though the random number they were shown has nothing to do with the answer sought, it might be taken as a visual cue and become an anchor for their responses. Anchor values can be self-generated, be the output of a pricing model or forecasting tool, or be suggested by an outside individual.

Studies have shown that some factors can influence anchoring, but it is difficult to avoid, even when people are made aware of it and deliberately try to avoid it. In experimental studies, telling people about anchoring, cautioning them that it can bias their judgment, and even offering them monetary incentives to avoid anchoring can reduce, but not eliminate, the effect of anchoring.

Higher levels of experience and skill in a specific field can help reduce the impact of anchoring in that subject area, and higher general cognitive ability may reduce anchoring effects in general. Personality and emotion can also play a role. A depressed mood increases anchoring, as do the personality traits of agreeableness, conscientiousness, introversion, and openness.

Anchoring and Adjustment in Business and Finance

In sales, price, and wage negotiations, anchoring and adjustment can be a powerful tool. Studies have shown that setting an anchor at the outset of a negotiation can have more effect on the final outcome than the intervening negotiation process. Setting a deliberate starting point can affect the range of all subsequent counteroffers.

For example, a used car salesman (or any salesman) can offer a very high price to start negotiations that are arguably well above the fair value. Because the high price is an anchor, the final price will tend to be higher than if the car salesman had offered a fair or low price to start. A similar technique may be applied in hiring negotiations when a hiring manager or prospective hire proposes an initial salary. Either party may then push the discussion to that starting point, hoping to reach an agreeable amount that was derived from the anchor.

In finance, the output of a pricing model or from an economic forecasting tool may become the anchor for an analyst. One possible way to counteract this is to look at multiple, diverse models or strands of evidence. Social psychology researcher Phillip Tetlock has found that forecasters who make predictions based on many different ideas or perspectives (“foxes”) tend to make better forecasts than those who focus on only a single model or a few big ideas (“hedgehogs”). Considering several different models and a range of different forecasts may make an analyst’s work less vulnerable to anchoring effects.

What Is an American Express Card?

An American Express card, also known as an “Amex” card, is an electronic payment card branded by the publicly traded financial services company American Express (AXP). The company issues and processes prepaid, charge, and credit cards. American Express cards are available to individuals, small businesses, and corporate consumers across the United States and around the world.

Understanding American Express Cards

American Express cards are issued by American Express and processed on the American Express network. American Express is one of only a few financial service companies in the industry that has the capability to both issue and process electronic payment cards.

American Express is a publicly traded company in the financial services industry. It offers both credit lending and network processing services, giving it a broad range of competitors in the industry. As with traditional lenders, it has the capability to issue credit products, which it provides in the form of charge cards and credit cards.

American Express has its own processing network that competes with Mastercard (MA) and Visa (V). Its most comparable competitor is Discover Financial Services (DFS), which is also a publicly traded financial service company offering both credit lending and a processing service network. With multiproduct capabilities, American Express generates revenue from both interest-earning products and network processing transaction services.

American Express Fees

American Express generates a significant portion of its revenue from transaction processing. Many merchants accept American Express cards and are willing to pay the transaction fees associated with processing because of the advantages that come with offering American Express as a payment option to customers.

In an American Express transaction, the merchant’s acquiring bank communicates with American Express as both the processor and the issuing bank in the transaction process. Merchant acquiring banks must work with the American Express processing network to transmit communications in American Express transactions. American Express is also the issuer that authenticates and approves the transaction. 

Merchants pay a small fee to American Express for its processing network services, which are part of the comprehensive fees involved with a single transaction. As both a processor and high-quality lender, American Express has built a strong reputation in the financial services industry.

Types of American Express Cards

As noted above, American Express credit cards and prepaid debit cards are offered to a variety of both retail and commercial customers. It is also an industry-leading provider of charge cards, which offer month-to-month credit with card balances that must be paid off each month.

American Express charge and credit cards follow standard underwriting procedures. The company seeks good- to high-credit quality borrowers—which means a credit score of at least 670—and generally is not a subprime lender.

American Express credit and charge cards come with a variety of benefits in the form of rewards points and travel perks, which depend, in part, on the annual fee charged. American Express cards may offer cash back on certain purchases, though they aren’t among the best cash back cards currently available. American Express also offers numerous branded prepaid debit cards, which can be used as gift cards or special-purpose reloadable payment cards.

Annual fees for American Express cards tend to run high: $95 for the Blue Cash Preferred Card, $99 for the Delta SkyMiles Gold American Express Card, $150 for the Green Card, $250 for the Gold Card, and $550 for the Platinum Card. That said, the Green, Gold, and Platinum cards have no predetermined spending limits. American Express does offer at least six cards with no annual fee. Customer service for all Amex cards is highly rated, with the company coming in No. 1 on J.D. Power’s 2020 U.S. Credit Card Satisfaction Study.

Partnerships, co-branded cards

American Express issues many of its cards directly to consumers, but it also has partnerships with other financial institutions. In the U.S., for example, Wells Fargo issued an American Express card (new applications were paused in April 2021, although this doesn’t affect current cardholders), and in Mexico, Banco Santander offers American Express cards. American Express also has partnerships with other companies to encourage consumers to apply for its credit cards. Two examples are its co-branded cards with Delta Air Lines, which allow consumers to earn frequent flier miles redeemable on Delta, and its Hilton Hotels co-branded cards.

Pros and Cons of an American Express Card

What Are Allocated Loss Adjustment Expenses (ALAE)?

Allocated loss adjustment expenses (ALAE) are costs attributed to the processing of a specific insurance claim. ALAE is part of an insurer’s expense reserves. It is one of the largest expenses for which an insurer has to set aside funds, along with contingent commissions.

Understanding Allocated Loss Adjustment Expenses (ALAE)

Allocated loss adjustment expenses, along with unallocated loss adjustment expenses (ULAE), represent an insurer’s estimate of the money it will pay out in claims and expenses. Insurers set aside reserves for these expenses to ensure claims aren’t made fraudulently and to process legitimate claims quickly.

ALAEs link directly to the processing of a specific claim. These costs may include payments to third parties for activities like investigating claims, acting as loss adjusters, or as legal counsel for the insurer. Expenses associated with ULAE are more general and may include overhead, investigations, and salaries.

Life insurance companies that use in-house employees for field adjustments would report that expense as an unallocated loss adjustment expense.

Special Considerations

Some commercial liability policies contain endorsements, which require the policyholder to reimburse its insurance company for loss adjustment expenses (ALAE or ULAE). Adjusting a loss is “the process of ascertaining the value of a loss or negotiating a settlement.”

Therefore, loss adjustment expenses are most often those costs incurred by an insurance company in defending or settling a liability claim brought against its policyholder. These expenses can include fees charged by attorneys, investigators, experts, arbitrators, mediators, and other fees or expenses incidental to adjusting a claim.

It is important to carefully read the endorsement language, which may say that a loss adjustment expense is not intended to include the policyholder’s attorney fees and costs if an insurer denies coverage and a policyholder successfully sues the insurer. In this situation, where the insurance company has done no actual “adjusting” of the claim, it should not be entitled to apply its deductible to the expenses incurred by the policyholder in defending the claim abandoned by the insurance company.

ALAE vs. Unallocated Loss Adjustment Expenses (ULAE)

Insurers have gradually shifted from categorizing expenses as ULAE to categorizing them as ALAE. This is primarily because insurers are more sophisticated in how they treat claims and have more tools at their disposal to manage the costs associated with claims.

Small, straightforward claims are the easiest for an insurance company to settle and often require less ALAE when compared to claims that may take years to settle. Claims that could result in substantial losses are the most likely to receive extra scrutiny by insurers and may involve in-depth investigations, settlement offers, and litigation. With greater scrutiny comes greater cost.

Analysts can tell how accurate an insurance company has been at estimating its reserves by examining its loss reserve development. Loss reserve development involves an insurer adjusting estimates to its loss and loss adjustment expense reserves over a period of time.