New acquisitions and a strong base push growth in Morocco

Already the largest and best developed in North Africa, the Moroccan insurance market is currently undergoing a range of reforms aimed at cementing its stability and further boosting premiums growth. These should soon see the launch several new products, as well as allowing firms to more easily build up their distribution networks, among other changes. Moroccan firms are also continuing to expand abroad and into sub-Saharan African in particular, transforming the kingdom into a regional centre.

Premiums

Total insurance premiums stood at Dh30.42bn (€2.8bn) in 2015. This was up 7% on the previous year, according to figures from industry representative body the Moroccan Federation of Insurance and Reinsurance Companies ( Federation Marocaine des Sociétés d’Assurances et de Réassurance, FMSAR), slightly ahead of the sector’s compound average growth rate of 6.3% between 2009 and 2014. The value of non-life insurance premiums stood at Dh19.65bn (€1.8bn) in 2015, or 64.3% of total industry turnover, while those of the life and savings segment were worth Dh10.6bn (€971.9m), or 34.7% of the total, according to the FMSAR. Despite its smaller size, the life sector has been driving growth in recent years, with the value of segment premiums having risen by 12.4% in 2015, up from growth of 9.6% in the previous year, compared to non-life growth of 4.4% and 4.9% in 2015 and 2014, respectively.

Penetration

Swiss Re Sigma’s “World Insurance in 2015” report put the value of insurance premiums in the kingdom at 3.05% of GDP, the fourth-highest in Africa (Morocco was still well behind the three leading countries, South Africa, Namibia and Mauritius with 14.69%, 6.98% and 6.43%, respectively), and the highest in North Africa, ahead of Tunisia with 1.91%, Algeria at 0.82% and Egypt with 0.68%.

The kingdom also posted the fourth-highest per capita level for premiums in Africa, and the highest in North Africa, at $90.80; North African peers Tunisia, Algeria and Egypt had premiums of $73.10, $31.80 and $23, respectively. In absolute terms, Swiss Re Sigma reported that Morocco was the second-largest insurance market on the continent and the largest in North Africa, with 2015 premiums valued at Dh30.42bn (€2.8bn).

Industry Players

Wafa Assurances Maroc was by far the largest insurance firm in the kingdom by premiums in 2015, with a total market share of 21.1%, according to FMSAR data. The firm’s turnover grew by 5.4% in 2015. The company is part of the Attijariwafa Bank’s financial group, which is in turn majority-owned by the Société National d’Investissement, a holding firm controlled by the Moroccan royal family. The second-largest insurer in 2015 was RMA Watanya, part of local conglomerate FinanceCom, of which BMCE Bank is also a member, with a market share of 18.2%, followed by Axa Assurance Maroc, the local unit of French insurance major AXA, with 12.8% and Saham Assurances, a subsidiary of Saham Group, with a 12.4% market share. Of the 19 firms in the sector no other company had a overall market share that exceeded 6%.

The sector has seen a flurry of activity in late 2015 and into 2016, with a number of new investors taking stakes in several firms. In November 2015 South African insurer Sanlam announced plans to acquire a 30% stake in Saham from the International Finance Corporation (the investment arm of the World Bank) at a cost of $375m. Then in June 2016 German insurer Allianz agreed to buy Zurich Assurances Maroc from its Swiss owner Zurich for €244m. Zurich Assurances Maroc is the seventh-largest property and casualty insurance firm in the market, with a 6.2% share in the non-life segment in 2015, according to the FMSAR.

Life Market

Wafa Assurances is the largest actor in the life insurance and capitalisation products segment, in which it had a market share of 32.4% in 2015, followed by RMA Watanya (25.3%), Marocaine Vie (12.1%), Axa Assurance Maroc (10.3%) and MCMA (10%), according to FMSAR figures. Individual life and death insurance dominated the segment, with 2015 premiums totalling Dh6.31bn (€578.6m), while the value of group life and death insurance premiums stood at Dh2.11bn (€193.5m) and capitalisation policies at Dh1.68bn (€154m). Around 80% of life premiums are sold in the form of bancassurance.

While the life & savings segment has been driving growth in recent years, Taoufik Benjelloun, general manager of Wafa Assurance told OBG that the rate at which it will expand in coming years was difficult to predict and that it faced some near-term challenges. “Life and savings insurance market consists of 75% of savings products, the growth of which depends heavily on issues such as banking liquidity, tax regulations and the performance of financial markets, so it is difficult to predict how it will develop in the coming years. In regards to life insurance products, they are mainly driven by bank loans. Credit growth was constrained in 2015 and while we were hoping for stronger growth this year, it currently does not look very likely,” he said. However, he also said the industry had a bright long-term future ahead of it. However, Benjelloun added that the industry nonetheless had a bright long-term future ahead of it. He said, “While the kingdom will not transform into a European-style market dominated by life insurance products overnight, it is gradually heading that way.”

Non-Life

Saham is the largest non-life firm with a segment share of 17.2%, followed by Wafa Assurance (15%), RMA Watanya (14.5%) and Axa Assurance Maroc (14.1%), according to the FMSAR. The largest product in the segment, accounting for nearly half of general insurance turnover, is car insurance, with 2015 premiums reaching Dh9.51bn (€872m). These were up 5.1% in 2015, below overall insurance sector growth, but ahead of growth for non-life expansion. Saham is also the largest player in the segment, with total 2015 premiums of Dh1.96bn (€179.7m).

Competition among the 18 providers in the segment is significant, leading to relatively low returns. Despite the large size of the segment in comparison to other insurance lines, industry figures say there is still plenty of room for growth as car ownership levels increase. “There is real potential in the auto segment given the low car ownership rate prevalent in Morocco and the emergence of a middle class,” Marie-Hélène Jai, CEO of Wafa IMA Assistance, told OBG. Other promising non-life lines include health insurance, with Aziz Majdoune, director of finances at Saham, telling OBG he believed the market for complementary health products would grow in coming years. “People used to look to the state for support, but that is changing and there is increasing demand for complementary products,” he said.

Assistance Market

Another area of rapid growth is the breakdown assistance market. There are currently four assistance firms operating in the kingdom, three of which are subsidiaries of insurance firms and one of which is a unit of a local bank. They are Axa Assistance Maroc, Maroc Assistance Internationale (MAI), Saham Assistance and Wafa IMA Assistance. Together the four brought in premiums of around Dh1bn (€91.7m) in 2015, up 10.1% on 2014 and well ahead of overall non-life insurance market growth of 4.9%, according to the FMSAR. MAI, a subsidiary of Banque Centrale Populaire, is the oldest and the largest of the four, with a 2015 share of 39.5%. Wafa IMA, a joint venture between Wafa Assurance and European assistance firm Inter Mutuelle Assistance, is the most recent entrant to the market, having been established in 2011.

The main products in the segment are breakdown assistance, travel insurance for Moroccans applying for Schengen visas and repatriation coverage for Moroccans living abroad. Jai told OBG that Wafa IMA has focused particularly on the last of the three, selling insurance through Attijariwafa Bank’s Moroccan network and its European branch network, which she said was working well, though she added that further work was needed in some countries. She told OBG that her firm was also seeking to enter the market for repatriation insurance for sub-Saharan African migrants living in Europe in the coming years.

New Regulator

In 2016 the sector saw the establishment of a new independent insurance regulator, the Supervisory Authority of Insurance and Social Welfare (Autorité de Contrôle des Assurances et de la Prévoyance Sociale, ACAPS). It replaced the Insurance and Social Security Directorate, which was a unit of the Ministry of Economy and Finance. The new body held its first board meeting in April 2016. Part of the motivation for the establishment of ACAPS was to ensure that Morocco is compliant with international insurance guidelines, as the International Association of Insurance Supervisors stipulates that regulatory bodies should be independent of the government. “The rule change will also give us more flexibility in areas such as recruitment,” Othmane El Alamy, deputy director-general of ACAPS, told OBG. The creation of the new authority is additionally set to increase competition in the industry, in which it has traditionally been difficult for would-be new entrants to the market to obtain licences. “Previously, the regulatory authorities were obliged to consult and encouraged to seek consensus from the industry on a wide range of issues including the issuing of new licences, to which they tended to be unfavourable; however, ACAPS has more flexibility in this arena,” El Alamy told OBG, although he added that the body would not take a free-for-all attitude. “If a company approaches us offering added value such as new coverage or expertise in a particular segment, we will give them a licence, but we are not, for example, interested in bringing more conventional players into already competitive segments such as car insurance.” A new system to mediate disputes between clients and insurance companies also began to roll out in January 2016. However, El Alamy told OBG that the system has not been adequately explained to clients and that as a result relatively few cases had gone to mediation so far. “There is a need for a more comprehensive information and awareness campaign regarding the system,” he said.

Legislative Changes

Several other regulatory changes for the sector are currently in the pipeline, including three major pieces of legislation. These include a bill modifying the insurance code that is currently awaiting parliamentary approval. The law will make a number of changes to the regulatory framework, including rendering several forms of construction insurance compulsory, as well as allowing for takaful (Islamic insurance) to be sold in the kingdom. As of mid-2016, the law appeared unlikely to be adopted before the end of the current session of parliament in early October 2016.

A draft law on natural catastrophe insurance has also been adopted by the government and is awaiting parliamentary approval. Among other measures, the law will create a fund to indemnify uninsured victims of natural disasters, financed by a tax on insurance contracts, and will also require that many types of non-life insurance contracts include natural disaster coverage. Ali Harraj, CEO of Wafa Assurance, told OBG, “The regulatory framework is going to go through some critical changes, particularly in terms of mandatory insurance, takaful, regulatory independent and renewed distribution. However, these will have a positive impact on the sector.”

A third draft law in the works will change some aspects of regulations covering distribution, such as allowing for remote sales of insurance contracts, including internet sales; removing licensing requirements for insurance agents, which currently involves an exam that is held only once every two years, complicating the ability of firms to expand their agency networks; and allowing banks to sell multi-risk home insurance products. “The law will provide for a great deal more flexibility and will thereby have a major impact on the expansion of the distribution network,” Bachir Baddou, director-general of the FMSAR, told OBG. However, he said immediate prospects for a take-off in online sales were poor. “The internet will eventually become a substantial distribution channel for insurance in Morocco, but not right now,” he told OBG.

Benjelloun said the reforms, and moves to expand the range of bancassurance products in particular, were welcome. “If insurance penetration is to grow, it is important to leverage bancassurance beyond traditional distribution networks to push specific product lines ,” he told OBG, while also arguing that fears that such changes could undermine traditional networks might be over-stated. “Banks are widely perceived as rivals to brokers and agents, but in reality the two networks tend to sell different products,” he said, arguing that products such as life insurance linked to bank loans would not have developed if left in the hands of traditional distribution networks.

Solvency

The regulatory authorities are also working on changes to solvency regulations, in line with the EU’s Solvency II insurance standards. “Current solvency requirements are based purely on insurance subscriptions, whereas under Solvency II they are required to take into account all types of risks faced by companies such as risks to their investments,” El Alamy told OBG. However, it remains unclear when the new rules, which have been under discussion for some time, will be brought in, with a timetable for implementation yet to be announced.

April 2016 also saw the implementation of a “no premium, no cover” rule obliging purchasers of car insurance to pay premiums up front in order to obtain proof of insurance. The rule was bought in as some local intermediaries were providing car insurance to clients on the promise of payment later, effectively creating a shadow lending system that had led to some agents and brokers facing financial difficulties when clients failed to pay up.

The change has created an opportunity for some firms, and Benjelloun told OBG that Wafa Assurance had launched, in March 2016, with Wafasalaf, a new financing product that was aimed at customers unable to pay premiums up front adding that several other firms were following suit.

Takaful

Among the headline changes in the draft legislation amending the insurance code is the creation of a market in takaful. One notable feature of the law is that, unlike recently passed legislation to create an Islamic banking market (see Banking chapter), it limits the market to independent sharia-compliant companies, banning conventional insurance firms from selling the product via dedicated takaful windows, as occurs in some countries. “People who want to buy from a takaful firm are not keen on buying it from companies that are also selling non-sharia-compliant products,” El Alamy explained to OBG.

In addition, while the law does not restrict Islamic insurance to any particular product line, the regulatory authorities initially plan to limit takaful firms to the life segment to avoid sudden disruptions of major markets such as car insurance. However, the measure will only be temporary, with El Alamy telling OBG that the regulatory authorities will likely consider extending it into the non-life market within the coming three to five years.

Baddou told OBG that while all major insurance companies were planning a foray into the segment, he believed the prospects for the expansion of takaful in its early years were fairly limited. “The launch of takaful will contribute to sector growth and help with diversification, but it will be a niche product, especially as life insurance is primarily sold by banks, and Islamic banks will take time to develop,” he said. The first Islamic banks are expected to be launched in 2017. However, Benjelloun argued that there was a real need for takaful. “Takaful insurance won’t take over the industry but there is definitely a market for it, for example to cover sharia-compliant financing products,” he argued.

African Expansion

Three Moroccan insurance firms, namely Saham, RMA Watanya and Wafa, have built up a presence across at least 25 African states and are particularly active in West Africa. Saham led the way through its acquisition of pan-African insurer Colina in 2010 for €100m, which gave it a presence in multiple African countries, and following further acquisitions the firm now has 31 subsidiaries across 26 countries throughout the continent. Mehdi Tazi, CEO of Saham Assurance, told OBG, “Morocco, already the second-largest insurance market in Africa, is looking to expand further in the continent, and with its large population, low penetration and increasing wealth, Nigeria is by far the most attractive market.” Saham’s most recent African acquisition was a 53.6% stake in Nigerian insurer Continental Re in September 2015, and in June 2016 online news site Financial Watch reported that it was carrying out due diligence on another non-life insurer in the country ahead of a possible bid.

RMA Watanya and Wafa followed Saham into sub-Saharan Africa in 2014, when RMA Watanya purchased a 40% stake in Beneficial Life Insurance Company, which gave it a presence in four West African markets. The firm aims to expand its reach to 10 continental countries by 2020.

Wafa established life and non-life units in Senegal also in 2014 and now has a total of six sub-Saharan subsidiaries, most recently having launched life and non-life operations in Côte d’Ivoire in February 2016; the other two are in Cameroon. “The natural next step is for us to develop the current subsidiaries and expand our footprint into English-speaking countries in the region,” Benjelloun told OBG, though he said that to date, the firm had no transaction it can disclose. Wafa also has a presence in Tunisia, where it is now the market leader in the life segment.

Baddou told OBG that the coming years would see even major further acquisitions. “Moroccan insurance firms’ expansion drive into Africa will continue, though some of the easiest work has perhaps already been done and expansion efforts may become somewhat harder as firms move into non-Francophone states,” he said.

Investment

Around four-fifths of industry profits come from investment returns rather than underwriting results, according to Wafa. The benchmark Moroccan All-Shares Index lost ground in 2015, putting downwards pressure on profit, and while the market made gains in 2014, it also fell significantly in previous years. “Insurance companies’ investment activities are very heavily regulated by the state and becoming even more so,” Benjelloun told OBG, with regulations requiring insurers to seek permission from the regulatory authorities before selling land that they have acquired, for example. Changes to the sector’s solvency regulations, which are currently in the pipeline (see above), and in line with the EU Solvency II regulations may also lead to a reduction in firms’ holdings of some types of assets.

Benjelloun told OBG that, as has been seen in the European insurance market, these changes could lead for example to companies having to either strengthen their capital – which he said not all companies might be in a position to do – or reduce their investments in the local equity market. “The experience of Solvency II in Europe has had some side effects ,” he said, arguing that the extent and speed at which any reform is implemented are key matters.

Outlook

While the life segment appears to be growing faster than non-life, given its low penetration rate, auto insurance can also expect to see significant growth as car ownership levels continue to rise. Plans to launch takaful products and relax restrictions on distribution should further support continued insurance expansion in the coming years. Moroccan firms’ expansion drive in Africa is also set to continue, cementing the kingdom’s status as one of the major players in the African industry.

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The Report: Morocco 2016

Insurance chapter from The Report: Morocco 2016

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