In pursuit of growth: The sector records an increase in premiums, while new products are introduced to the market

With local insurers developing new products in an effort to reach currently unserved segments of the population, Morocco’s insurance market has become more competitive in recent years. As a result, the domestic penetration rate, or total premiums as a percentage of GDP, increased to 2.95% in 2012, up from 2.8% in 2011 and 2.3% in 2010. Indeed, Morocco is now Africa’s second-largest insurance market in terms of penetration after South Africa and the third-largest in the Middle East and North Africa after Saudi Arabia and the UAE. Similar to banking sector players, Moroccan insurers are also increasingly expanding into other, less-developed markets in Africa.

PERFORMANCE: Total premiums in 2012 reached Dh26.03bn (€2.3bn), an increase of 8.9% on the previous year. Growth continued in 2013, with provisional data from the Moroccan Federation of Insurance and Reinsurance Companies (Fédération Marocaine des Sociétés d’Assurances et de Réassurance, FMSAR) indicating that premiums for the first six months of the year totalled Dh14.8bn (€1.3bn), a 3.1% increase over the same period in 2012. Non-life premiums – thanks to automobile coverage – continued to dominate, representing some 66% of the market in 2012 at a value of Dh17.19bn (€1.5bn), compared to Dh8.84bn (€785m) for life premiums.

However, while growth in insurance premiums has been considerable, averaging 10% per annum since 2004, this continued to be driven primarily by the life segment in 2012. While non-life premiums rose 6.3% year-on-year (y-o-y), below its five-year average of 8.9%, life premiums were up 14.5%, slightly ahead of their five-year average growth rate of 14.2%. The trends for the first half of 2013 were mixed. Non-life continued to grow at 5.3% y-o-y, and life premiums fell by 2.2%. Despite the strong growth in life insurance premiums, penetration rates remain low at 0.96%, compared with 1.99% for non-life premiums.

Within the non-life segment, automobile insurance still represent the lion’s share with total premiums of just over Dh8bn (€710.4m) in 2012, an increase of 6.5% y-o-y. Personal injury insurance now represents 17% of non-life premiums, or Dh2.9bn (€257.5m), after expanding by 5.1% in 2012. The strongest growth in 2012 was seen in fire insurance, with an increase of 15% y-o-y to Dh1.2bn (€106.6m), and “other”, with a 30% jump to Dh651m (€57.8m).

PLAYERS: There are a total of 17 active insurers in Morocco, although the sector is dominated by four players, which among them held 68% of the market at end-2012. Several mergers and acquisitions in the sector over the past decade shaped the landscape of the current market, with the most recent transaction, a 2009 merger between CNIA and Assurance Es Saada, creating the current CNIA Saada Assurance. Moroccan insurers have aggressively pursued growth over the past decade and many cooperate with, or are owned by, banks to cross-sell their products.

MARKET BREAKDOWN: In 2012 Wafa Assurance held onto its position as the market leader, generating 22% of total insurance premiums or Dh5.7bn (€506.2m), according to FMSAR. With premium growth of more than 16% y-o-y to Dh5.1bn (€452.9m), RMA Watanya increased its market share to 19.5% in 2012, more than making up for its weak performance in the previous year, when it ceded market share on a 1.6% contraction in premiums. Axa Assurance lost 0.3% in market share, although it nonetheless saw robust growth of 6.4% in premiums, and with 13.4% of the market it remains the third-largest insurer in Morocco. Similarly, CNIA Saada ceded 0.3% of its market share to settle at 12.4%, but still saw a similar 6.2% growth in premiums. The next five companies in terms of total premiums are Sanad, Atlanta, MCMA, Zurich Assurance and La Marocaine Vie, with each holding market share of between 4.2% and 5.5% and with aggregate premiums of just over Dh1.2bn (€106.6m).

Breaking down the market between life and non-life, there is little change among the largest firms by premiums. In the life segment Wafa Insurance holds some 34.2% (down from 36.7% in 2011) and RMA Watanya has 26.5% of premiums (up from 22.6%). While their market share may be small, Atlanta (1.7% in 2012) and Sanad (2.4%) have seen the strongest growth rates in this segment in recent years. Atlanta’s life premiums grew 41% in 2012 to Dh149m (€13.2m), and Sanad’s rose 144% to Dh209m (€18.6m).

While non-life insurance is far more fragmented, the top four insurance providers hold more than 64% of the market. CNIA Saada Assurance held the largest share, following 8% growth in non-life premiums in 2012. Non-life is quite a tight segment, however, with Axa Assurance holding 15.7%, while RMA Watanya has 15.9% and Wafa Assurance 15.8% of premiums.

The Moroccan insurance sector has long been open to international investment, and three of the largest actors (La Marocaine Vie, Axa and Zurich) are owned by or subsidiaries of foreign firms. The most recent foreign investor in the sector was France’s Inter Mutuelle Assistance (IMA). In 2011 it formed a joint venture with Wafa Insurance (65% Wafa, 35% IMA) to offer comprehensive insurance products (life, casualty and automobile) to Moroccans living abroad.

REINSURANCE: Following the privatisation of Société Centrale de Réassurance (SCR) in 2006 and the subsequent opening up of the market, the number of companies offering reinsurance policies has expanded considerably. Today seven companies are present in the market: SCR, CNIA Saada, Mutuelle Agricole Marocaine d’Assurances (MAMDA), MCMA, Axa Assurance, Wafa IMA Assistance and RMA Watanya. However, reinsurance premiums have fallen considerably in recent years following the government’s decision to lift a legal obligation requiring all insurance companies to allocate 10% of total premiums to reinsurance. The regulation was phased in gradually, becoming fully effective as of January 2014. As a result, the volume of new reinsurance premiums is expected to drop, as some Moroccan insurers opt to take their reinsurance business to foreign operators. Data from the Department of Insurance and Social Welfare’s ( Direction des Assurances et de la Prévoyance Sociale, DAPS) 2012 annual report indicated total reinsurance premiums of Dh2.3bn ($204.2m) for SCR (down 7.26% y-o-y) and Dh188m (an increase of 15% y-o-y) for other Moroccan reinsurers; 9.5% of total premiums remain allocated to domestic reinsurance.

In the long term, Morocco aims to become a regional centre for reinsurance, although this is not with its challenges, according to Mehdi Tazi, CEO of Saham Assurance Maroc. “Morocco's potential as a regional hub for reinsurance depends on the availability of qualified human resources, a stable legal framework, and a high degree of connectivity with Europe and Africa. However, the country faces competitors such as Mauritius that have attractive fiscal incentives and permit the free movement of capital,” Tazi told OBG.

STOCK EXCHANGE: Institutional investors, such as insurance firms and pension funds, are by far the largest investors in the Casablanca Stock Exchange (CSE), accounting for over 50% of all trades. At the end of 2012, listed shares accounted for some Dh24bn (€2.1bn), or 22% of the sector’s total assets under management of Dh109bn (€9.7bn). Likewise, direct holdings in bonds represented a further Dh24bn (€2.1bn), according to DAPS’s 2012 annual report on insurance companies. Historic data from DAPS indicates that as the stock market has plummeted in recent years, the preponderance of fixed-income products, in particular bonds, has grown in insurance companies’ portfolios. In 2008 the sector held some Dh62.9bn (€5.6bn) in equity and Dh18.7bn (€1.7bn) in fixed income; in 2012 this was Dh51.5bn (€4.6bn) and Dh50.1bn (€4.4bn), respectively.

The CSE is also an important source of capital for insurance firms. Of the 17 insurers in Morocco, three (Wafa Assurance, Atlanta and CNIA Saada) are listed on the stock exchange, along with an insurance broker, Agma-Lahlou Tazi. Together they make up around 5% of the Morocco All Shares Index (MASI). Despite strong operating results, the sector continued to underperform in 2013, falling just over 6% to 3402 points, as opposed to the MASI, which fell just 2.6%.

GROWTH POTENTIAL: Continuing the trends of recent years, life and savings insurance is expected to be a strong driver of growth given that much of the population remains uncovered. Once the contract programme is approved, there is likely to be significant growth in property and civil responsibility insurance. Homeowners’ and workplace injury insurance have also been identified as growth areas, as has the assistance segment. Mohamed Oudrhiri, managing director of ISAAF Assistance, told OBG, “The assistance market is growing but is still fairly new, which means most activity is in classic segments, such as car assistance or travel assistance; however, as time goes on, assistance companies should find new engines for growth and extend their portfolio of activities.”

Elsewhere, a sector-wide priority is to increase comprehensive coverage, including life, health and property insurance, with particular attention being paid to self-employed people, such as doctors, lawyers and artisans. This segment represents an estimated 30% of Morocco’s workforce, and many of the self-employed work informally. Despite being required by law to have private coverage, most are thought to be under-covered or indeed to have no insurance coverage whatsoever, as at present there is no organisation to enforce the requirement, according to Taoufik Lachker Hidara, technical director at La Marocaine Vie.

NEW PRODUCTS: As competition has heated up in what remains a small market, insurers have broadened their product offering, with a number of new products now available that target diverse segments of the population. For example, under the Green Morocco Plan, the government’s long-term agricultural development strategy, the state formed a public-private partnership with MAMDA in 2011 to shield farmers from seasonal fluctuations and to protect sector capital through a “climate multi-risk” insurance product. This is offered by MAMDA to producers of nine staple crops and protects against a variety of climate-related damage. Agricultural insurance covered 300,000 ha of operations when introduced in the 2011/12 season and aims to cover 1m ha by end-2015.

BANCASSURANCE: In 2005 DAPS authorised banks to distribute insurance products. This provided a real fillip for Morocco’s insurance market, with total premiums more than doubling from Dh12.2bn (€1.1bn) in 2004 to over Dh26bn (€2.3bn) in 2012. With a banking penetration rate of 57%, this distribution channel served to widen access to insurers considerably. Data from DAPS indicate a superior growth rate for bancassurance products, with premiums in that segment growing by 19% to Dh5.8bn (€515m) in 2012, compared to total sector growth of 9%.

The next step, according to Bachir Baddou, director-general of FMSAR, lies in micro-insurance, given the country’s still low level of financial inclusion. This would likely be offered via microcredit organisations, many of which are owned by banks. Microcredit institutions already have the right to sell micro-insurance under existing legislation; however, the question is finding the right products for the market. Micro-insurance by its nature targets low-income population segments. In other countries where microfinance is more developed, such as Mali, successful micro-insurance products include health, crop and funeral cover.

Ramses Arroub, CEO of Wafa Assurances, told OBG, “Although Morocco already boasts the highest rate in the MENA region in terms of insurance coverage, the potential for growth is still very high for the next few years. The insurance sector is trying now to reach out to lower-income categories by tailoring more affordable basic products.”

SECTOR REFORM: A number of important regulatory reforms are under way to improve oversight and enforcement capacity, and ensure coherence between private insurers and pension funds. In early January 2014 the creation of a new independent insurance sector regulatory agency, the Insurance and Social Welfare Regulating Agency (Autorité de Contrôle des Assurances et Prévoyance Sociale, ACAPS), was approved by the government. The legislation transfers most regulatory functions to ACAPS from DAPS (which is part of the Ministry of Economy and Finance) in order to increase the authority’s political independence and to separate the oversight and sanction functions, both of which were previously filled by DAPS. There will be no significant changes to insurers as a result of this legislative change, aside from the fact that they will be required to fund ACAPS through annual contributions. Importantly, ACAPS will begin overseeing the national pension and health care funds. The public retirement fund, Caisse Marocaine des Retraites, is heavily indebted and reform is needed to ensure the fund’s sustainability (see analysis).

In 2011 FMSAR and other private sector representatives drafted a sector development strategy, the 2011-15 contract programme, which broadly aims to increase penetration and boost revenues by making a number of insurance products obligatory and introducing fiscal incentives to encourage demand for long-term saving and pension products. Specific 2015 targets included a doubling of total premium intake to Dh40bn-50bn (€3.6bn-4.4bn); assets under management in the sector of Dh200bn (€17.8bn), of which Dh23bn (€2bn) would be dedicated to small and medium-sized enterprise investments; and the creation of 55,000 jobs (5000 direct). The programme also envisaged boosting access to basic health coverage and reducing the number of accident victims on the road. A proposed Dh23bn (€2.04bn) investment is planned under the contract programme for the development and promotion of priority areas such as homeowners’ and other personal liability insurance and the introduction of compulsory natural catastrophe risk policies. The programme was accepted by the government in 2011 and new regulations have since been drafted. These still await approval, although it is hoped they will be adopted in 2014.

REQUISITE: According to Baddou, the most important proposals of the contract programme focus on mandatory insurance and civil responsibility, both for individuals in their homes and for buildings such as restaurants and theatres, as well as insurance for the construction industry. For the latter, two types of insurance are proposed to become mandatory: a 10-year builders’ risk insurance that will render project managers responsible for the safety and security of buildings for 10 years, and building site insurance to protect contracting firms from damage to their property while under construction. According to FMSAR estimates, this is an underdeveloped sector with considerable growth potential. Construction and public works generated over Dh50bn (€4.4bn) in 2012 and the sector accounts for around 6% of GDP. While the construction industry slowed in 2013, the longer-term outlook remains positive, suggesting that if the contract programme is approved, this sector stands to generate considerable insurance premiums.

The sector is currently compliant with international solvency standards known as Solvency I, the insurance equivalent of Basel. With the Solvency II accord finally signed in Europe in mid-December 2013 after almost a decade of wrangling, the next step for Morocco is implementation of Solvency II, which aims to harmonise capital adequacy requirements (both solvency capital requirements and minimum capital requirements), governance, and supervision and disclosure requirements within the EU insurance industry. With some 50% of investments made by insurers going to public infrastructure projects through investment in government bonds, there were concerns that implementation of the proposed restrictive capital requirements of Solvency II would dramatically reduce insurers’ capacity to support these projects, which are critical for growth. However, the final accord signed not only included capital relief measures, but more importantly for Morocco, with its “BBB-” rating, the proposed strict limits on insurers’ holdings of triple B-bonds were scrapped. This means Moroccan insurers, required by legislation to invest 70% of assets under management in bonds, can continue to buy the government’s bonds under the requirements.

ALTERNATIVE PRODUCTS: In conjunction with the introduction of sukuks, or sharia-compliant bonds, the Islamic Finance Law also envisages the eventual development of sharia-compliant insurance products, known as takaful. Under the proposed system, clients would pay a contribution into a pool managed by the insurance company, which can be drawn upon for claims. The insurer can only invest in products that have been judged compliant by an independent sharia board, which would be set up within the central bank.

While the potential for takaful is considerable – the global takaful market has grown from $4.2bn in 2007 to $11bn in 2012, at a compound annual growth rate of 21%, and is forecast to hit $17bn by 2015, according to Ernst & Young’s “Global Takaful Insights 2013” report – Islamic finance in North Africa as a whole is limited, with the bulk of the activity currently concentrated in the Gulf and South-east Asia (despite Egypt’s role in pioneering contemporary Islamic banking).

According to Baddou, this is primarily for two reasons: first and foremost the industry is not seeing an urgent demand from the population for these products, and attempts by banks to market sharia-compliant products in recent years have met with limited success; secondly, for these products to flourish, a separate distribution channel would need to be set up.

ISLAMIC FINANCE LAW: While the draft text of the Islamic Finance Law has been under discussion for several years – most recently delayed by the changes to the government in 2013 (see Economy chapter) – its approval is now expected in 2014. Once approved, this would facilitate the development of Islamic banking and takaful products, but would require existing insurance providers to set up separate takaful arms. All told, given the time it will take to establish all of the necessary framework and products, Hidara indicated to OBG that a fully operational takaful market is unlikely to exist in Morocco before 2018.

Foreign operators will be allowed to enter the segment through joint ventures with domestic firms, with ownership capped at 49% for the foreign investor to protect nascent domestic takaful firms from competition from larger, more established foreign institutions. To date several investors, in particular Gulf institutions like Qatari International Islamic Bank, have expressed interest in such investments, according to local press reports, thus setting the landscape for further expansion in this sector in years to come.

EXPANSION ABROAD: In part thanks to either the expansion of their parent companies or through established partnerships with the banking sector, Moroccan insurance companies have started expanding into Africa over the past few years. Given stiff competition in the domestic market, combined with their comparatively large balance sheets and economies of scale, many Moroccan insurers have started positioning themselves to take advantage of the significant opportunities that exist in wider Africa. Swiss Re Sigma data indicates that while Africa may currently only represent 1.9% of global life premiums at $50bn annually and 1.1% of global non-life premiums with $22bn, this is a high-growth market. Growth rates in both segments were in excess of 8% before the global financial crisis, well ahead of global growth of closer to 3%. While growth has since declined to 3% annually, given the continent’s low penetration rate of 3.65% (1.1% excluding South Africa), the industry is expected to return to form as economic growth returns.

Following its 2010 acquisition of Collina, the third-largest insurer in Central and West Africa in terms of premiums, in 2013 Saham Finance (parent company of CNIA Saada) bought both Angolan insurer GA Angola Seguros and a controlling stake in Kenyan insurer Mercantile Insurance. Similarly, Wafa Assurance later acquired a 75% stake in Côte d’Ivoire’s Solidarité Africaine d’Assurance in 2012. National reinsurer SCR has also developed its presence abroad recently, with more than 25% of its turnover now derived from its international operations. SCR is now the largest reinsurance company in the Arab world in terms of premiums and the second-largest in Africa.

OUTLOOK: Morocco’s insurance market is expected to continue to expand in the medium to long term, in line with growth in sectors such as construction, real estate and manufacturing. Approval of the contract programme could provide a real fillip for the industry, as could the eventual approval of the Islamic Finance Law. In the meantime, the industry continues to develop new products and new ways to access segments of the population that are still uninsured. While domestic growth ticks along in the background, expansion into underserved African markets represents a potentially lucrative opportunity for Morocco’s insurers. The years ahead will be interesting.

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The Report: Morocco 2014

Insurance chapter from The Report: Morocco 2014

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