An upward trajectory: The life segment is expected to pick up again, while growth in other lines continues

Although insurance penetration in Algeria is still low by regional and world standards, the sector is growing quickly. Total premiums have almost doubled between 2006 and 2011, giving a compound annual growth rate of 13.55% from a starting point of AD45.82bn (€439.87m). Profits also increased during the same period, with net income as a percentage of gross written premiums rising from 5.3% in 2006 to 11% in 2010, according to statistics cited by Standards & Poor’s. The overall claim rate in 2010 stood at 41.7%, or AD33.47bn (€321.31m), of premiums. Claims were highest in the car insurance segment, at 64.2% of premiums, and lowest in the transport segment, at just 5% of premiums. Premiums grew quickly between 2007 and 2009, before slowing to mid-single digit growth in 2010 and 2011. This was due in part to a slowdown in large infrastructure and public works projects that had helped drive expansion in the fire and miscellaneous risks segment in previous years. “The insurance industry is particularly well developed in the construction sector, as Algeria is one large worksite, thanks to all the five-year plans,” said Abdelkrim Alilat, the commercial director of resources at GAM Assurance. According to Nourredine Mameri, the director of studies at the National Insurance Council (Conseil National des Assurances, CNA), “The market will start to grow faster again as new projects are launched.” Some industry figures are forecasting a return to double-digit growth in 2012.

ON THE UP: Premiums grew by 6.7% in 2011 to AD86.5bn (€830.4m), from AD81.08bn (€778.37m) in 2010, not including international risks insured by the national reinsurance company Central Reinsurance Company (Compagnie Centrale de Réassurance). Property and casualty insurance grew by 8% year-on-year (y-o-y), to AD79.83bn (€766.37m), while life insurance turnover fell by 7.1%, to AD6.67bn (€64.03m). Growth slowed in the first quarter of 2012, when industry turnover stood at AD24.8bn (€238.08m), up 2.7% from AD24.1bn (€231.36m) in the same period the previous year, according to figures from the CNA. Private sector turnover increased slightly faster than the industry as a whole, at 4% y-o-y, to AD7.4bn (€71.04m). Fire and miscellaneous risks insurance grew by some 8% to AD8bn (€76.8m). The best performing segment was agricultural coverage, sales of which rose by 45.6%. This was driven by livestock policies. However, natural disaster and transport insurance turnover dropped by 10% and 16%, respectively, while life insurance turnover declined 52.3%.

AGRICULTURE: The fastest-growing segment in 2011 was agricultural insurance, which saw premiums increase by 31.5% for the year and by 45.6% in the first three months of 2012, though it still accounts for less than 2% of the total insurance market. Four of the 16 property and casualty firms offer agricultural insurance, namely the National Agricultural Mutual Fund (Caisse Nationale de Mutualité Agricole, CNMA), the largest player in the segment; the National Society for Insurance (Société Algérienne d’Assurance), L'Algérienne des assurances (2A) and the International Insurance and Reinsurance Company (Compagnie Internationale d’ Assurance et de Réassurance). However, only CNMA offers a full range of agricultural insurance.

One of the reasons for the low level of take up is that only around 150,000 of the 900,000 farmers take out coverage, partly because they are accustomed to state assistance in the event of problems. Premiums are out of reach for many farmers and the authorities are thus working on a new agricultural insurance system, under which the state will help pay for insurance against disasters, providing farmers take out a basic policy themselves. The project will include regulations defining insurable agricultural disasters and will establish a new National Agency for the Prevention of Agricultural Risks (Agence Nationale de Prévention des Risques Agricoles), which will educate farmers, carry out research and set up an agricultural risk database. A draft version of the project is now awaiting government approval.

MOTOR: Motor insurance was the largest single product in 2011, with a total sector market share of almost half (49.7%). Premiums grew by 9.5% during the year. However, the segment continues to expand, despite a number of recent constraints. “Car insurance is still rising, even despite the ban on consumer credit, which included credit for buying cars, Mameri told OBG. “Asian cars in particular are coming into the country and car dealers are aggressively marketing insurance, so the market keeps expanding.” Others believe the arrival of new players may boost the segment even further. “Car insurance and the insurance of individuals is not saturated yet and could grow more with the arrival of AXA,” said Hassan Khelifati, the CEO of Alliance Assurances.

Despite the motor segment’s size and continuing growth, firms operating in the sector face a number of challenges. “The car business is profitable, but badly managed,” Alilat told OBG. “There is a lot of fraud, with rates running at around 40-50%.” The segment is also highly competitive and is characterised by what industry players have described as a “price war” (on non-mandatory product lines, as the price of compulsory third-party liability insurance is fixed), which some say is putting excessive pressure on smaller firms and restricting premium growth. Some providers have called for regulations to be stepped-up to block unfair competition, and in June 2012 13 insurance companies signed an agreement to put an end to cap discounts being offered on motor products at 30% for insurance for individuals and 50% for corporates. The Ministry of Finance approved the agreement the following month.

LIFE: While in developed markets life premiums tend to outstrip property and casualty business, in Algeria the segment currently accounts for less than a 10th of total premiums, and over the past year the sector has actually been shrinking. Life insurance premiums fell by 7.1% in 2011, to AD6.67bn (€64.03m), dragged down in part by a 37.9% drop in the value of accident and illness premiums written. Segment turnover declined a further 52.3% in the first quarter of 2012 compared to the same period the previous year, from AD2.12bn (€20.35m) to AD1.01bn (€9.7m), largely a result of major declines in group insurance, as well as in accident and illness insurance.

POSSIBLE POTENTIAL: The main reason for the large fall appears to be a change in the law, which came into force in mid-2011, obliging companies to separate their life and non-life businesses. This saw many firms exit from the life business, at least temporarily, and even for those that launched life affiliates, the change resulted in a drop in the number of distribution networks selling life insurance as newly established companies had to build up their own networks from scratch. Some observers believe life insurance will pick up again as newly founded life-only companies establish distribution networks. “Before the change in the law, life premiums were growing by around 5-7% a year,” said Mameri. Moreover, life premiums as a share of total premiums rose rapidly leading up to the change, from some 6% in 2006 to 9% in 2010. Consequently, some industry players see major potential in the segment. “The life insurance market is currently fairly marginal, but could in time become very important,” Khelifati said.

Other observers say progress remains limited and that the segment faces constraints. “Despite the split, life insurance is not developing,” Alilat said. “What is missing is a developed financial market. People do better putting money in the bank than in a life insurance product or insurance savings fund.” Restrictions on foreign exchange also bar investment abroad. Insurers report that the scope of state benefits is another hindrance to market development and that Algerians do not feel the need for complementary insurance protection.

Still, firms see promise in the segment and are continuing to enter it, most recently in the form of French insurer AXA, which began operations in the country in December 2011 as a life affiliate as well as a property and casualty insurer. Sharia-compliant provider Salama and Alliance Assurances are among firms planning to launch life affiliates. According to local press, Alliance sought a partnership with Tunisian insurance firm Maghrebia, but the authorities failed to respond to its application regarding the joint venture. The firm applied to the National Investment Fund for support in January 2012, but as of July had not yet had a response.