Interview: Youssef Fassi Fihri
How would you evaluate the performance of the Moroccan reinsurance industry?
YOUSSEF FASSI FIHRI: While the Moroccan insurance sector has been performing very well, the performance of the reinsurance industry in 2016-17 was rather poor. This is mainly because the vast majority of Moroccan insurers have moved from contract to excess treaties. Consequently, it is in the insurer’s interest to maintain more risk. For example, higher risk for life, motor or property insurance means that premiums decrease for reinsurers, contributing to a decline in revenue. However, Moroccan insurance companies have not only performed well domestically, but have also become important players across the African continent. These insurers are increasingly looking for new products and, with new regulations and obligatory policies having come into effect, they can increase their portfolio. These revised policies include, for instance, coverage for natural disasters, takaful (Islamic insurance) or engineering. Therefore, Moroccan reinsurance companies are poised to offset losses accrued from a decline in domestic business through operational expansion in the international market, particularly Africa. For reinsurers, markets such as Nigeria and Angola remain of particular importance due to their developed energy sectors. Reinsurers depend on a diversified portfolio and require a matrix between the reinsurer’s geographic location and its respective lines of business, whether that be in the property, motor, engineering or life insurance segment, and whether they be located domestically or abroad. The entrance of reinsurers into excess treaties also often leads to a downgrading of their sovereign rating, though their solvency margins may well be in excess of 150%. To better deal with this issue, the Supervisory Authority of Insurance and Social Welfare is currently setting up a new solvency regulatory framework, which will include a shift towards a risk-based solvency regime.
To what extent have new infrastructure projects stimulated demand for reinsurance in Morocco?
FASSI FIHRI: There have been a number of infrastructure projects in renewable energy, notably the Ouarzazate solar power complex and the Taza wind farm. These types of projects require reinsurers who know exactly what type of policy ought to be provided, so reports are compiled on-site to identify reinsurance needs for projects that require a high quotation. At the same time, the life segment remains very important for big reinsurance companies. SCR, for instance, focuses less on life reinsurance in Morocco, but rather manages an Afro-Asian aviation pool. Reinsurers ought to increase their appetite for local markets and thereby act less as a broker for foreign reinsurers. This means that reinsurers ought to develop their IT and ERM branches and offer more training opportunities for their staff in order to provide more policy solutions for small African insurers.
How would you describe the framework that ratings agencies apply to the insurance sector?
FASSI FIHRI: The ratings given to reinsurers are questionable due to the quantitative and qualitative aspects of the frameworks used. On the quantitative side, the reinsurer’s rating is often based purely on financial aspects of the business. Qualitative requirements, however, seek to strengthen governance for insurance and reinsurance, as well as their control of risks and geographic diversification. Reinsurers are primarily constrained by sovereign risk and by assets. In the case of systemic risk, we notice an impact on the prices of the assets themselves – except if there is a decline in these domestic assets, as then there is a drop for everyone. Along the same lines, if the dirham is devalued, we will also be devalued. However, if these assets are African or pan-Arab, this problem would not arise, since ratings agencies tend to favour international diversification.
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