As is the case in many emerging markets, the Algerian insurance sector is characterised by both low penetration rates and much room for growth, particularly given the large domestic market and robust outlook for retail segments. The life segment is small and shrank in 2012 following the compulsory separation of life and non-life businesses.

Despite this, in 2013 there have been signs that this restructuring is now starting to bear fruit, with the prospects for medical insurance particularly strong. The industry remains dominated by state-owned firms; however, private companies are now gaining market share, and the recent entry of an international major is likely to boost the private sector. “Consumer insurance in Algeria is still marked by its lack of development, although the potential is very high,” Lamine Benaissa, general manager at Inter Partner Assistance, told OBG.

OVERALL PERFORMANCE: According to global reinsurer Swiss Re, insurance premiums in 2012 represented 0.67% of GDP, compared to 1.8% in Tunisia and 2.95% in Morocco. Per capita premiums were $34.30, Life premiums in MENA countries, 2012 compared to $76.30 in Tunisia, $87.60 in Morocco and $3677 in “advanced markets”.

However, these low penetration rates mean there is plenty of room for growth, and indeed the sector is expanding rapidly, as recent figures show. Total insurance premiums in 2012 stood at AD99.9bn (€949.1m), up 14.1% on 2011 figures in nominal terms, according to data from the National Insurance Council (Conseil National des Assurances, CNA). According to OBG calculations (using IMF estimates for inflation), real premiums growth in 2012 stood at around 4.6%, a faster rate of expansion than that of the economy as a whole during the year (which the IMF puts at 2.5%). Real sector growth rates outstripped real GDP growth in all but one of the last five years. Premiums expanded at an inflation-adjusted compound annual growth rate of about 7% across the period (though much of the growth came early in the period, with sector turnover rising by 20% in 2008), compared to real compound annual GDP growth of around 2.5%. Growth has returned to high levels in recent months; premiums grew 20% in size in the final quarter of 2012, and in the first half of 2013 – the latest available data – overall premiums rose 22% year-on-year, to AD60bn (€552m).

“The Algerian insurance market is a market with great potential but which is running late in terms of its development,” said Adelane Mecellem, CEO of AXA Assurance Algérie, adding that part of the reason has been the approach of some industry players themselves. Actors in the Algerian insurance market often have a more administrative approach to insurance, and some companies have not succeeded in taking advantage of the country’s potential. While Algeria does not suffer from a lack of demand, there is a dearth of offerings in terms of companies, products, services and the like.

MAIN SEGMENTS: In 2012 non-life premiums were worth AD92bn (€874m), or about 93% of the market, and were up 15% on 2011 in nominal terms. Life premiums, by contrast, shrank by 4.9%, to AD6.7bn (€63.7m). In the first half of 2013, non-life premiums were worth AD56.1bn (€516.12m), representing a rise of 20.6% on the same period in 2012. Auto insurance remains by far the most popular insurance product, in part because some elements of coverage, such as civil liability, are mandatory.

Motor accounts for more than half of total nonlife premiums (56.8%), according to the CNA. This is followed by fire and miscellaneous risks, which represented more than a third of the non-life segment (34.4%). Competition for car insurance business is intense, to a point which many players say is unhealthy, and at the end of 2012 the Algerian Union of Insurers and Reinsurers (l’Union Algérienne des Sociétés d’Assurance et Réassurance, UAR) reached an agreement with firms aimed at ending what some firms described as the “chaotic” state of price competition in the car insurance market.

No other segment accounts for more than 6% of non-life premiums. However, there are promising signs that smaller segments are catching up, with agricultural and credit insurance growing much faster than the auto and fire segments in 2012, at rates of 38.3% and 30.1%, respectively. Transport, agriculture and credit insurance also grew faster than the market’s overall rate of growth in the first quarter of 2013. Abdelhak El Mansour, AXA’s deputy CEO, told OBG that his firm saw particular promise in several niches, particularly construction equipment and contractors’ liability risks. The contracting sector represents an important and growing market as a result of high government spending on public works projects.

INDUSTRY PLAYERS: There are currently 23 companies active in the Algerian insurance market, including a national reinsurance firm, Compagnie Central de Réassurance (CCR). Of the country’s insurance firms, 10 are state-owned and these are the dominant players in the sector in terms of market share, controlling approximately three-quarters of the non-life market taken together.

Four state-owned non-life firms account for the bulk of the public sector’s market share. These are the Compagnie Algérienne d’Assurance et de Ré assurance (CAAR), Société Algérienne d’Assurance (SAA), Compagnie Algérienne d’Assurance Transport (CAAT) and Compagnie d’Assurance des Hydrocarbures (CASH). Together, the four had a non-life market share of around 66% and an insurance market share of approximately 64% in 2011.

SAA’s 2011 turnover stood at AD21.15bn (€200.9m), equivalent to around 25% of total non-life premiums, while CAAT’s sales stood at AD14.64bn (€139.1m), giving it a market share of 17%. CAAR’s total turnover for the year reached AD12.8bn (€117.7m), or a 15% market share, and CASH’s stood at AD7.9bn (€75.1m), giving it a non-life market share of 9%. CAAR’s turnover in 2012 stood at about AD13.4bn (€123.3m), equivalent to 17% of total non-life premiums; the other firms’ 2012 results did not appear to have been reported at the time of writing.

There three publicly owned life firms, all affiliates of state-backed non-life companies, namely: the Société d’Assurance de Prévoyance et de Santé (a joint venture between SAA and French company Macif); the life unit of CAAR, Compagnie Algérienne d’ Assurance et de Réassurance Accident Maladie Assistance (CAARAMA); and Taamin Life Algérie, a unit of CAAT. The other three state-backed insurance firms are the national reinsurer CCR and two credit risk specialist firms: Exports Compagnie Algérienne d’Assurance et de Garantie des Exportations, an export credit insurer; and Société de Garantie du Crédit Immobilier Algérie, which provides real estate credit insurance.

PRIVATE FIRMS: Private firms all have smaller market shares than the main publicly backed companies, due primary to the challenge of expanding a client base against legacy firms. The sector has been liberalised since 1995, before which public firms had a monopoly, meaning private firms have had to gradually build up market share while competing with well-established public players. Among the larger private firms by market share is Alliance Assurances, which in 2012 sold premiums worth AD3.7bn (€35.2m), giving it a non-life market share of 4%, and Générale Assurance Méditerrannéenne, with a 2012 turnover in the region of AD3.5bn (€32.2m). The market in which private players have the largest share is car insurance, where they account for around 31% of premiums, according to CNA figures.

The newest entrant to the market is international insurance major AXA, one of the largest insurance company in the world by several measures and whose Algerian affiliate launched operations in 2011. The firm’s Algerian operations are 49% owned by AXA, 15% by domestic bank Banque Extérieure d’Algérie and 36% by the National Investment Fund. Unusually for the AXA Group, it started new operations in Algeria from scratch rather than acquiring a domestic firm. “The huge potential of the Algerian insurance market allowed for us to make a greenfield investment in the country,” said Narimane Makhloufi, CEO of AXA Assurances Algérie Vie, the life branch of AXA in the country. In 2012 the company recorded turnover of AD60m (€570,000). As of April 2013 it had 22 agencies (15 of which opened in 2012), which it aimed to raise to 50 by 2014. The firm expects to achieve an overall market share of 5-6% by 2015.

REGULATION & REFORM: The Ministry of Finance is responsible for sector regulation, via its Directorate of Insurance. Another body, the Insurance Oversight Commission, was launched in 2008 and oversees the sector as well. Recent regulatory changes include a new regulation published in the official journal in March 2013 that alters how solvency margins are calculated, slightly increasing them. The authorities are also making efforts to encourage firms to improve standards, such as dealing with late pay-outs and improving provisioning for claims. However, the need to update regulations has also highlighted the importance of ensuring improved enforcement.

BRINGING PLAYERS TOGETHER: In addition to the above regulatory bodies, another key actor is the CNA, which brings together representatives of insurance companies, intermediaries, clients, the regulatory authorities and industry employees. As well as acting as a forum for discussion and cooperation and collating and publishing insurance statistics, the CNA – which is presided over by the minister of finance – is responsible for evaluating the state of the insurance industry and proposing changes to improve its functioning and the promotion of the sector.

Projects on which the council is currently working include the creation of a new insurance code that would incorporate all regulations on insurance in a single document. The institution also started work on the project in 2012 and is currently focusing on the car insurance segment. Abdelhakim Benbouabdellah, the permanent secretary of the CNA, told OBG that due to the ambitious scale of the project there is currently no fixed schedule for its completion. “It will take a long time; the project involves looking at all texts with any relevance to the sector,” he said.

Another major new project on which the CNA is working is an industry database, due to enter into operations in the second quarter of 2014. “The database will be a decision-making tool for firms and will also provide the regulatory authorities with real-time data on the sector,” said Benbouabdellah. The project will initially offer information on issues such as premiums by insurance branch and claims pay-outs before more detailed information is added in a second phase. In addition, the CNA is also working on a new human resources project that will redefine and reclassify all jobs in the sector and establish what competencies and skills are needed for them. The CNA then aims to put in place a training programme based around these definitions, working with the School for Higher Insurance Studies to achieve this.

INVESTMENT: Insurance firms are obliged to invest at least 50% of their funds in government bonds. While some say this is a constraint, others argue that a paucity of local investment opportunities for insurance companies (which are not permitted to invest funds abroad) due to the underdeveloped nature of Algeria’s capital markets means that the real impact of the rule is limited. “When the stock market starts to develop more, the requirement might have to be reviewed and the rules made more sophisticated,” said Lies Kerrar, president and managing director at corporate finance advisory firm Humilis, adding that the rules were not the only obstacle to firms’ investments in instruments other than treasuries.

“The small number of shares listed on the bourse reduces the amount companies can invest in equity even further, as it is effectively impossible for them to diversify their holdings,” he told OBG.

REINSURANCE: The only Algerian reinsurer is the CCR, and there are 10 licensed foreign reinsurance brokers operating in the country. The CCR’s gross written premiums stood at AD16.5bn (€156.8m) in 2012, up from AD13.5bn (€128.3m) in 2011. Ratings agency AM Best in July 2013 confirmed its “B+” rating of the firm’s financial strength and its issuer credit rating of “BBB-”, describing the outlook as stable, based the firm’s good local business position and “strong risk-adjusted capitalisation”.

Since 2010 insurance firms have been obliged by law to offer at least 50% of their reinsurance business to the CCR (though the reinsurer can decline to take up the full offering, in which case firms are free to seek reinsurance from foreign firms for the remaining amount). Many regard the obligation as having a negative impact on the market, and the UAR has written to the authorities to ask them to revert to the previous situation, under which the figure was between 5% and 10% (depending on the type of risk). The country is already a small market, and the 50% rule may make it less attractive to large reinsurers, which have shown increasingly less interest in recent years, and some fear this will result in less expertise and support for Algerian companies from reinsurers.

BANCASSURANCE: Bancassurance is now well established in the sector, having been permitted since the passing of a 2006 law; however, there are problems with its development. The segment has seen some setbacks in recent years, despite support for the concept from the state and the number of bancassurance contracts that have been signed. Reasons for this include the fact that in most countries the first products to be sold via bancassurance tend to be life and savings products, the former of which are not well developed in Algeria and the latter of which are currently unavailable, as well as insurance for consumer credit, which is now banned. Insurers also have a large role to play in the development of bancassurance. In the Algerian market, bancassurance remains a new concept and industry players have emphasised the responsibility of insurers to demonstrate the benefit of integrating insurance solutions into the products proposed by firms’ bank partners.

Nevertheless, El Mansour said that the prospects for the sales channel are good; most sales are direct, with brokerage accounting for around 5% or less of total sales. “Life insurance is now growing again, which means bancassurance has a bright future ahead of it. It will be one of the methods through which life insurance firms can reduce their costs, as it will reduce the need for firms to open agencies,” Benbouabdellah told OBG. Industry figures also say the authorities have been making an effort to help develop the segment, through, for example, the drawing up of templates for bancassurance agreements and the rapid approval of those agreements, which should further assist its development.

ASSISTANCE: The assistance services market effectively dates from 2008, when Inter Partner Assistance, a 50:50 joint venture with AXA, became the first such firm to be launched in Algeria, working with a variety of local insurers and starting in the automobile/breakdown segment, before expanding into the travel market and then the health segment in 2013. The firm launched a multi-risk home assistance product in 2013. Other firms in the segment include Algeria Assistance, the main shareholder in which is Spanish insurer Mapfre Assistence Algeria, and Algérie Touring Assistance, which was launched in 2006 by local insurer Alliance Assurances in partnership with Touring Club Algérie. “Algeria is still virgin territory in terms of assistance,” said Yasmine Si Amer, finance manager of Inter Partner Assistance.

“The concept is not well understood by many; for example, when we call plumbers looking for partners under our home risk product, they often initially don’t ‘get it’. Algerians are also very unconvinced about new products. However, people are getting used to the idea and are now even starting to demand it as part of insurance packages,” she said.

With the market still relatively new and only a handful of firms operating in the segment, competition is limited. “There is room for more players,” said Si Amer. “However, the 51:49 investment rule [under the 2009 complementary finance law, which limits new foreign investment in Algerian companies to a maximum stake of 49%] is a barrier for major international players entering the market, as it could be hard for them to bring in their expertise while not controlling the company.” Nevertheless, she believes other major international assistance providers would enter the country. “The potential in the assistance market is so great that it will probably override concerns about having a minority shareholding,” she said.

OUTLOOK: The outlook for the sector will depend in part on private sector economic growth, which industry figures say is helping to boost insurance uptake. More broadly, penetration rates are likely to gradually rise in the coming years, given factors such as their low base and the growing interest of multinationals in the sector. Diversification is crucial for the future of the sector, such as developing products specific to different professional bodies. Indeed, prospects for growth in the personal insurance market appear particularly good now as reforms affecting the segment bed in and more life firms open up.