Innovative reforms spur insurance sector growth in Morocco

 

The Moroccan insurance market has seen rapid growth and large-scale regulatory reform with the foundation of an Islamic insurance sector as well as new forms of compulsory insurance. The kingdom is already the best-developed insurance market in North Africa, as well as a major force in the African market, and these changes – together with plans to liberalise distribution regulations – should help to underpin further sector development in the years to come.

PREMIUMS GROWTH: The Moroccan insurance sector is currently in a period of accelerated growth. According to the most recent figures from the Supervisory Authority of Insurance and Social Security (Autorité de Contrôle des Assurances et de la Prévoyance Sociale, ACAPS), the new sector regulator, industry premiums grew by 15.4% in 2016, compared to inflation of 1.6% and real GDP growth of 1.2%, to reach Dh35.1bn (€3.3bn). This was up from 7% the previous year, and average growth of 10.1% between 2011 and 2015.

This saw insurance penetration rise to 3.6% of GDP, up from 3.1% in 2015. This likely further cements Morocco’s status as the most developed insurance market in North Africa, at nearly double the 2015 penetration of its nearest regional rival, Tunisia (1.9%). In absolute terms, the kingdom was the second-largest insurance market in Africa in 2015, behind only South Africa.

However, while the sector has been outpacing economic expansion in recent years, growth in 2016 was strongly boosted by a decision by France’s Banque Centrale Populaire to outsource the management of an employee pension fund to Taamine Chaabi, a joint venture between the bank and insurer Mutuelle Centrale Marocaine d’Assurance (MCMA). Industry figures say that this was a one-off event that did not actually represent a real increase in savings even if it boosted the industry’s balance sheet, meaning that such expansion is unlikely to be replicable at quite such a rapid rate in coming years. “The insurance market has grown for seven to eight years,” Khalid Aouzal, CEO of brokerage company ACECA, told OBG. “Life growth was driven by Banque Centrale Populaire and its outsourcing of Taamine Chaabi. In terms of non-life growth, the Moroccan market is the most sophisticated in Africa after South Africa.” Growth was particularly strong in the life insurance and savings segment, with premiums up 35.4% to Dh14.3bn (€1.3bn), or 40.7% of all insurance premiums sold in the kingdom.

This in turn was driven by very strong growth in savings products, which saw a 48.1% rise in turnover in 2016, to Dh11.1bn (€1bn), or 31.6% of total insurance premiums. However, this was in part due to the aforementioned move by Banque Centrale Populaire to outsource management of its employee pension fund.

ON THE RISE: The market nevertheless witnessed significant growth even excluding that event; market leader Wafa Assurance saw a substantial rise of 21% in its 2016 savings premiums, and Taoufik Drhimeur, vice-president of Moroccan insurer RMA Watanya, told OBG that savings products are attracting more interest thanks to the country’s economic development, rising awareness, and the fact that banks are currently focused on marketing such products heavily. The second-largest life insurance and savings segment was death coverage, with premiums growing by 4% over the course of the year to Dh2.7bn (€250m), or 7.7% of the value of total premiums.

Turnover in the non-life segment, a more mature market, grew by a modest 4.8% over the year to Dh20.8bn (€1.9bn), equivalent to 59.3% of total premiums. The largest non-life segment was car insurance, with premiums worth Dh10bn (€926m), equivalent to 28.4% of industry turnover and up 4.6% over the previous year. Compulsory civil liability insurance premiums, meanwhile, stood at Dh8.5bn (€787.1m). The fastest-growing non-life segment was assistance, credit and caution, with premiums rising by 12.8% in 2016, followed by health, maternity and accidental injury, with premiums growing by 8.7% to Dh3.7bn (€342.6m).

INVESTMENT RETURNS: According to ACAPS, total sums under investment by the kingdom’s insurance industry stood at Dh134.8bn (€12.5bn) in 2016, up 6.25% on 2015 figures and generating a return of Dh6.7bn (€620.4m), for a yield of 4.9%.

While returns on Moroccan Treasury bonds are currently very low, 2016 saw the local stock market’s strongest performance in a decade, helping to push insurance investment returns up 17.3% (see Capital Markets chapter). Overall industry profits were also up strongly for the year, by 7.7% to Dh3.2bn (€296.3m).

REGULATORY CHANGE: The year 2016 saw the establishment of a new independent sector regulator, ACAPS, which took over from the Insurance and Social Security Directorate (Direction des Assurances et de la Pré voyance Sociale, DAPS), a unit of the Ministry of Economy and Finance (MEF). “The creation of ACAPS as an independent body has allowed the regulatory authorities to become more active, which has had a noticeable effect in the form of stepped-up legislative and regulatory change,” Drhimeur told OBG. In August 2016 Morocco passed the final approval of long-awaited legislation overhauling the Code des Assurances, or insurance law. A range of applicatory decrees still need to be put in place before the law comes into effect; Othmane Elalamy, secretary-general of ACAPS, told OBG he hoped these would be in place by end-2017, however, they had yet to be fully implemented at the time of publishing.

TAKAFUL LAUNCH: Prominent changes under the new law include a move towards a risk-based solvency regime and the establishment of a takaful (Islamic insurance) industry in the country. Elalamy said that the first takaful firms should become operational by the first or second quarter of 2018, once the relevant applicatory regulations for the sector were in place, and applications for licences had been submitted to and reviewed by the regulator. Unlike the banking sector, where conventional banks will be allowed to operate sharia-compliant windows for Islamic banking services, insurance companies will have to choose between offering exclusively conventional or takaful-based products; conventional firms seeking to enter the Islamic market will therefore have to launch standalone takaful subsidiaries to do so. The establishment of a takaful segment in the kingdom is part of the wider development of Islamic financial services in Morocco. In particular, 2015 saw the passage of a new banking law that, in addition to other changes, created the regulatory framework for the establishment of Islamic banks, known locally as participatory banks, and January 2017 saw Bank Al Maghrib, Morocco’s central bank, approve five requests for the establishment of Islamic banks, as well as three by conventional banks to establish Islamic windows. The creation of an Islamic banking sector in the country should speed the development of the takaful segment as a result, with such banks likely to be among the main distribution channels for sharia-compliant insurance products. Though the law does not specify any such restrictions, the regulatory authorities are planning to initially limit takaful products to the life and family segment, and multi-risk home insurance, the only form of damage insurance that will be permitted under the initial regulatory regime; all of these lines are likely to primarily be sold via bancassurance, whereby insurers partner with banks to market and sell policy lines. “We don’t want to destabilise major markets such as car insurance by opening the entire sector to takaful firms at once,” Elalamy told OBG, saying that the regulatory authorities would evaluate the impact on the life sector before taking a decision on whether to eventually open up other branches to sharia-compliant firms.

COMPULSORY PRODUCTS: The new insurance law also renders two forms of construction-related insurance compulsory: contractors’ all-risk insurance for construction site activities and decennial insurance covering contractors’ liabilities should a building collapse within 10 years of construction. “There is a lot of building work under way in Morocco, so the new compulsory construction policies should give rise to an attractive market, though there will be a need for a lot of work from brokers and other intermediaries to develop it,” Drhimeur told OBG. Introducing new forms of mandatory insurance was part of the so-called Contrat-Programme, the roadmap for the development of the sector agreed between the regulatory authorities and local insurance companies in 2011.

A law published in the Official Gazette in September 2016 further mandates that insurance companies must include natural catastrophe coverage in wider damage, compulsory motor civil liability and third-party injury civil liability contracts as part of a comprehensive framework for dealing with and insuring against the consequences of natural disasters. “Compulsory natural disaster insurance will create a captive market for insurers; however, it will need to be well managed, as firms lack experience in managing these risks, which are potentially high,” Drhimeur added.

DISTRIBUTION REFORM: Another law modifying the country’s insurance code, with a focus on distribution channels in the sector, is still awaiting legislative approval. The legislation, when finalised, is expected to bring about changes including permission for insurance firms to sell contracts remotely, for example online, and to expand the range of insurance that banks can sell to include multi-risk home insurance and credit card insurance, which Elalamy said were too small to attract a great deal of interest from intermediaries. “There is strong demand from banks to be allowed to sell multi-risk home insurance, as it helps them underpin the security of the mortgages they sell,” he told OBG. In addition, the legislation will end the current requirements for insurance agents to pass a licensing exam, which Elalamy said would help companies more rapidly build up their network of agents.

As of early 2018 a draft version of the law was being reviewed by the secretary-general of the government, after which it should be passed on to the Cabinet for approval and then to Parliament. Elalamy said that currently there was little visibility as to when the legislation would receive final approval. “The delay in forming the government following 2016’s elections has pushed the timetable back, and the schedule depended on Parliament’s priorities in 2017, though we are lobbying for its swift approval,” he told OBG.

SOLVENCY REGIME: In addition to such legislation, ACAPS is also working on a new regulatory circular that will reform the sector’s solvency framework. The new regime will be inspired by international solvency frameworks such as the EU’s Solvency II, though Elalamy stressed that it would be tailored to the needs of the Moroccan market. Work on the circular has only recently begun, and a series of initial proposals were with the sector for review as of early 2018.

Once this is complete ACAPS intends to establish a commission comprising regulatory and industry representatives to look at the proposals in more detail, before launching a series of impact studies. “It is a major project and it will be at least a few years before the new framework comes into effect,” Elalamy added.

DIVISION OF LABOUR: ACAPS is also working on a new general regulatory circular that will combine all of the authority’s regulatory responsibilities into a single document, with those of the MEF to be documented elsewhere. Elalamy said the authority was close to finishing work on the circular, after which it would be sent to the ministry and then to the government for final approval, a process he expected to take a further six to eight months, though he said that its finalisation was not a major priority. “The current regulatory framework allows the authority and sector to function properly, so there is no particularly pressing need for the circular to be issued quickly,” he told OBG.

Other recent regulatory changes include the publication in April 2016 of an ACAPS circular regulating relations between insurers and intermediaries. Notable changes in the document include barring intermediaries from issuing certificates proving that an individual has purchased car insurance until the client has paid the premiums for the contract, in effect prohibiting firms from selling car insurance on credit.

SECTOR ROADMAP: The authorities are also considering putting together a new roadmap for the sector, following the partial implementation of the previous Contrat-Programme agreed between the authorities and insurance companies, some elements and targets of which were missed or not implemented. For example, the initiative sought to raise total insurance premiums to Dh40bn (€3.7bn) by 2015. “The Contrat-Programme was somewhat overambitious and in the end not all of it could be implemented, so we are looking at trying to formulate a more realistic plan for the development of the sector,” Elalamy told OBG.

COMPETITIVE LANDSCAPE: The largest company by turnover operating in the Moroccan insurance sector is Wafa Assurance, on local premiums of Dh7.3bn (€676m) in 2016, up 14.2% on the previous year and equivalent to a market share of 20.8%. These broke down into life premiums of Dh4bn (€370.4m) – a life market share of 28.3%, ranking Wafa as the largest life insurer in the kingdom – and non-life premiums of 3.3bn (€305.6m), representing a market share of 15.7%. Wafa is 79.3% owned by a firm called OGM Holding, a part of the Attijariwafa financial group. The group is led by the bank of the same name – Morocco’s largest bank by assets – and is 47.8% owned by the Moroccan royal family via the Société Nationale d’Investissement (SNI) holding group. In October 2016 Attijariwafa Bank, which previously had full ownership of OGM, announced plans to sell a 50% stake in OGM to SNI to boost its solvency ratios following its purchase of Barclays Egypt – effectively increasing the monarchy’s stake in the insurer.

The second-largest player in the sector is RMA Watanya, part of the FinanceCom group, which also includes BMCE Bank. RMA directly holds a 29.8% stake led by Moroccan businessman Othmane Benjelloun, the firm’s majority shareholder. RMA registered a turnover of Dh5.8bn (€537.1m) in 2016, up 5.6% on the previous year and representing a market share of 16.5%. Other large players include AXA Maroc, owned by French insurer AXA, and Saham Assurances, part of the Saham Group founded by Moulay Hafid El Alamy, the minister of industry, trade, investment and digital economy.

In June 2016 German insurer Allianz, the second-largest insurer in the world by assets, acquired a 98.9% stake in Zurich Insurance Maroc, the Moroccan unit of Switzerland’s Zurich, for €240m. The firm officially began operating as Allianz Maroc in January 2017 and is aiming to double its market share within five years.

Allianz’s entry into the market follows the purchase of a 30% share in Saham Assurances by South African firm Sanlam in February 2016 for $375m. In May 2017 the South African firm completed a transaction to acquire a further 16.6% stake in Saham for $329m, increasing its holding to 46.6%.

Such investment by regional and international heavyweights should help to provide large amounts of capital for development of the industry and boost sector competition. “The arrival of Allianz and Sanlam via its share in Saham underscores the growing interest of major international firms in the sector. Large international reinsurers are also investing in the country via Casablanca Finance City,” Drhimeur told OBG, referencing the city’s economic and financial centre. “This is putting increased competitive pressure on existing firms; however, competition is becoming less about price and more about customer service, which is a positive dynamic and will be good for the sector’s development,” he added.

One area where such investment is being felt is digital insurance services, such as mobile apps provided by insurance companies. “The market has become aware of consumers’ changing behaviours – they are more connected, using digital devices and the like – so lots of companies are trying to improve their digital as well as client services,” Drhimeur told OBG.

AFRICAN DRIVE: Following in the footsteps of Moroccan banks, three major Moroccan insurance companies have built up a presence in sub-Saharan African markets in recent years, particularly in francophone West Africa. Saham has by far the largest presence on the continent of any Moroccan insurer, with operations in 19 countries, as a result of its 2010 acquisition of pan-African insurance provider Colina and its purchase of a 100% stake in Mauritian non-life insurer Sun Insurance for an undisclosed amount. Wafa and RMA, which in 2014 purchased a 40% stake in West African regional insurer Beneficial Life Insurance, each have a presence in four countries. November 2016 saw the official launch of Wafa Assurance’s two Côte d’Ivoire units, a life and non-life firm, respectively, which received their licences from the local authorities the previous February.

Drhimeur told OBG that Moroccan insurance firms remained interested in expanding their presence in sub-Saharan markets; however, he said that recent regulatory changes by Central and West African insurance regulator Inter-African Conference on Insurance Markets (Conférence Interafricaine des Marchés d’ Assurance, CIMA) could reduce the attractiveness of further expansion in the region. “CIMA recently tripled capital requirements, which will require firms to raise capital, and give rise to consolidation and other market changes, as well as requiring reinsurers to be physically present to operate in the region – both of which could impact profitability,” Drhimeur told OBG.

REINSURANCE: In contrast to the rising insurance industry, Morocco has experienced a steady decline in its reinsurance sector. In recent years, reinsurance cessions claimed an overall market share of 9.3% in 2015 and 10.3% in 2013. However, in 2016 reinsurance cessions were worth Dh2.8bn (€259.3m) , or 8% of total insurance premiums, according to ACAPS.

The market is home to a national reinsurer, Société Centrale de Réassurance (SCR), which is a unit of state investment fund Caisse de Dépôt et de Gestion specialising in industrial risks. A second Morocco-based reinsurer – the privately owned MAMDA Re, a joint venture between local insurance firm MAMDA, the US-based Partner Re and France’s Mutuelle Centrale de Réassurance – was established in 2014 primarily to sell agricultural reinsurance throughout Africa. However, most reinsured premiums go abroad; 9.3% of local insurance premiums were ceded to 32 foreign reinsurers in 2014, compared to a total reinsurance cession rate of 9.8%. Total reinsurance premiums accepted by local insurance companies, not including the SCR, stood at Dh190mn (€17.6m) in 2016, down from Dh210m (€19.4m) the previous year. “Despite the increase in insurance premiums, regional insurance companies must redouble their efforts with more imagination and innovation,” Larbi Nali, regional director at reinsurer Africa RE, told OBG. “This is principally due to fierce competition and the rise of protectionist economic regimes in some African markets.”

OUTLOOK: The robust growth witnessed in 2016 was driven in part by a one-off event and is unlikely to be repeated in coming years. Nevertheless, factors such as the emergence of a middle class, growing awareness of insurance, remote sales of coverage, the launch of takaful firms and new compulsory insurance lines should help to sustain expansion rates in excess of GDP growth. Coupled with growing industry interest in building a wider Moroccan presence in the sub-Saharan African market, these developments will assist in raising sector penetration and further consolidate Morocco’s status as the leading insurance market in North Africa.

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The Report: Morocco 2018

Insurance chapter from The Report: Morocco 2018

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