Expanding the market: Growth expected from new products and foreign expansion

Over the past decade, Morocco’s insurance market has seen rapid growth and now represents the second-largest market on the continent after South Africa, and the third largest in the Arab world after Saudi Arabia and the UAE. The domestic penetration rate, or total premiums as a percentage of GDP, is around 2.8%, up from 2.3% in 2010, and several new avenues offer opportunities for growth. The domestic market is becoming more competitive, pushing local insurers to develop products to reach uncovered segments of the population. In addition, several Moroccan insurers are beginning to expand into less-developed markets in Africa. Sector authorities are also working to reform the regulatory context to capitalise on overall growth.

PERFORMANCE: The volume of overall premiums in 2011 grew by 9.2% year-on-year (y-o-y) to reach Dh23.89bn (€2.12bn), an increase of 62% over 2006. Provisional figures from the first half of 2012 indicate the upward trend of the past 10 years is set to continue. Premium volume rose by 9.48% between January and June, according to estimates by the Moroccan Federation of Insurance and Reinsurance Companies (Fédé ration Marocaine des Sociétés Compagnies d’Assurances et de Réassurance, FMSAR). Non-life premiums continue to represent the lion’s share of the market, with 67.3% in 2011 for a value of Dh16.08bn (€1.42bn), compared to Dh7.65bn (€680m) for life premiums. However, the sector’s strong performance, which averaged 11% annual growth over the past five years, has largely been driven by life insurance. The rise in life premiums slowed to 0.9% in 2010 as many banks promoted competing savings products, but picked up in 2011 with 16% growth y-o-y. In the first half of 2012 the rate of increase in life insurance premiums significantly outpaced that of non-life, registering 16.84% and 6.7%, respectively.

Within the non-life segment, automobile insurance represents the majority of premiums and grew some 6.4% y-o-y to reach Dh7.53bn (€669m) in 2011. Personal injury insurance now represents 11.7% of all premiums, or Dh2.8bn (€248.9m), after expanding 2.7% y-o-y. While business risk and general liability premiums represent smaller pieces of the pie, they also registered solid growth in 2010 and 2011, expanding by 11.5% and 7%, respectively. Fire insurance grew more slowly in 2011, at 2.9%, after having seen stronger growth in 2010, but represents an important segment of the market with Dh1.06bn (€94.2m) in premiums.

GROWTH POTENTIAL: Life and savings insurance are expected to remain important growth drivers given that much of the population, including low-income groups and those who are self-employed, remain uncovered or under-covered for these risks. Property and casualty insurance are also anticipated to stimulate future growth, as several products within these lines have yet to be developed. Homeowners’ insurance and workplace injury in particular have considerable potential for expansion. The number of companies offering reinsurance policies has expanded in recent years after the government moved to liberalise the sector in 2006, ending the monopoly of the state-supported Société Centrale de Réassurance (SCR). Six firms have since carved out a market share, namely CNIA Saada, Mutuelle Agricole Marocaine d’Assurances (MAMDA), MCMA Axa Assurance, Wafa IMA Assistance and RMA Watanya.

Reinsurance premiums have been affected by the government decision to lift a legal obligation requiring insurance companies to allocate 10% of all premiums to reinsurance. The regulation has been phased out and will be completely eliminated by January 2014. Without this stipulation, the volume of new reinsurance premiums dropped to the equivalent of 6%, according to preliminary SCR estimates, as some Moroccan companies choose to subscribe to reinsurance from foreign firms. Excluding SCR, Moroccan companies saw reinsurance premiums of Dh163.2m (€14.5m) in 2011, down 23% from Dh194.3m (€17.2m) in 2010.

PLAYERS: There are 17 insurers active in Morocco, although the sector is dominated by a handful of large players. Indeed, the four largest private insurers hold 70% of total premiums. A series of mergers and acquisitions in the past decade, most recently the 2009 merger between CNIA and Assurance Es-Saada, has led to the development of stable operators.

MARKET BREAKDOWN: Wafa Assurance held its position with the highest volume of total premiums in 2011 and was the only firm among the top four to increase its market share y-o-y, from 20.6% in 2010 to 22.1% in 2011 with total premiums of Dh5.28bn (€469m). The next largest insurer, RMA Watanya, saw its premiums contract by 1.6% to Dh4.38bn (€389.4m) and lost two percentage points of market share to settle at 18.3%. Axa Assurance Maroc held steady at a 13.7% share, but saw 9.7% growth in premiums to Dh3.27bn (€290.7m). CNIA Saada followed with a 12.7% market share. The next five companies in terms of premium volume, Sanad, Atlanta, MAMDA, Zurich and La Marocaine Vie, each hold from 4-5.5% of market share with premiums just over Dh1bn (€88.9m).

In the fast-growing life insurance sector, Wafa Assurance holds a 36.7% market share, due in part to bancassurance sales through its partner, Attijariwafa Bank. RMA Watanya remained the second-largest provider of life insurance, but ceded 5.2% market share, while La Marocaine Vie and Axa Assurance Maroc each saw over 9% annual growth in life premiums. MAMDA doubled its premiums y-o-y to reach a market share of 10% in 2011. While the top five life insurance providers hold 91.1% of premiums, the non-life segment is much more fragmented. RMA Watanya is the market leader with 16.3% of total premiums, followed by CNIA Saada, Axa and Wafa Assurance, all with a market share of 15%.

The sector has long been open to international investment. Indeed, three key actors, La Marocaine Vie, Axa and Zurich, are owned by or are subsidiaries of foreign firms. Morocco also saw a new market entrant in 2011, Wafa IMA Assistance, which is a joint venture between Wafa Assurance and the European group Inter Mutuelle Assistance (IMA). The company was launched in June 2011 with a capital of Dh50bn (€4.44bn), 65% held by Wafa and 35% by IMA. The insurer began by marketing a comprehensive product covering life, casualty and automobile insurance, geared specifically to Moroccans residing abroad (see analysis).

NEW PRODUCTS: As competition for the limited domestic market base has heightened, insurers are working to diversify their product offerings and capture a larger segment of the population. A sector-wide priority is to increase comprehensive coverage, including life, health and property insurance for independent workers such as doctors, lawyers and artisans. There are few mid-range options available for the self-employed, and insurers are beginning to adapt products to their needs. The outgoing market regulator, the Department of Insurance and Social Welfare (DAPS), estimates that roughly 3m independent professionals have yet to be included under the compulsory health insurance programme, which came into effect in 2005.

The government has also promoted agricultural insurance through a public-private partnership with MAMDA to shield farmers from seasonal fluctuations and to protect sector capital. In the past, narrow coverage was available only to cereal producers. However, under the agricultural development strategy, the Green Morocco Plan, the state worked with a consultancy to reform and expand the system. Since 2011, the new “climate multi-risk” insurance product is available through MAMDA for 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 is targeted to increase to 1m ha by 2015.

BANCASSURANCE: The market has been greatly stimulated by the spread of bancassurance. The DAPS authorised banks to distribute insurance in 2005 and life premiums have expanded rapidly since then. With a banking penetration rate of roughly 45%, this distribution channel opened up a broader audience to the insurance industry. Most insurers are either wholly owned by or partnered with banks. “The spread of bancassurance has been very effective in Morocco,” Bachir Baddou, the director-general of FMSAR, told OBG. “The strong growth in life insurance premiums in recent years has largely been carried by this channel.”

SECTOR REFORM: Important regulatory reforms are under way that should help to increase sector organisation and expansion. First, the government is creating a new insurance sector regulatory agency, the Insurance and Social Welfare Regulating Authority (ACAPS), to replace DAPS under the Ministry of Finance. Draft legislation has been before parliament since the third quarter of 2011 and is still awaiting approval.

The legislation will transfer most regulatory functions to ACAPS to increase the authority’s political independence and to separate the oversight and sanction functions, both of which are currently filled by DAPS. ACAPS funding is slated to come from annual contributions by insurance firms. Furthermore, ACAPS will begin oversight of the national pension and health care funds for the first time. The public retirement fund, Caisse Marocaine des Retraites, is heavily indebted and reform will be needed to ensure the fund’s viability.

Second, FMSAR and other private sector representatives drafted a sector development strategy, the 2011-15 Contract Programme, which will eventually introduce a set of regulations to complement the insurance code. The programme was accepted by the government in May 2011 and new regulations are now being drafted. The programme stands to increase the insurance penetration rate and advance the sector by making a number of insurance products mandatory, boosting access to basic health coverage, and introducing fiscal incentives to encourage demand for long-term saving and pension products. A proposed Dh23bn (€2.04bn) investment is planned under the Contract Programme, which will go to the development and promotion of priority insurance areas, such as homeowners’ and other personal liability insurances, and introduce compulsory natural catastrophe risk policies.

To increase health coverage for the low-income population and those working in the informal sector, the government set up the Medical Assistance Scheme for the Economically Disadvantaged (Régime d’Assistance Médicale des Économiquement Démunis, RAMED) in late 2011. According to figures from the Ministry of Health, 460,000 individuals had been accepted under the state-sponsored programme by July 2012 and the ministry has set an ambitious goal of reaching 8.5m subscribers by 2014. To enforce compulsory insurance such as RAMED and catastrophe coverage, Morocco will first need to expand its brokerage network to reach a broader segment of the population, particularly in low-income and rural areas of the country.

Finally, the sector is preparing to implement the international solvency standards known as Solvency II, the insurance sector equivalent of Basel II. It is expected that these standards will be brought into force by 2015.

BUILDING BUSINESS: The Contract Programme also aims to strengthen insurance requirements for the construction industry. Two types of insurance will become mandatory: 10-year builders’ risk insurance, making project managers responsible for the safety and security of buildings for 10 years, and worksite insurance to protect contracting firms against damage to their property while under construction (see Construction chapter). According to FMSAR assessments, this is an underdeveloped segment with considerable potential for growth. Sector GDP for construction and public works generated Dh49.5bn (€4.4bn) in 2011 and contributed 6% of overall GDP. With a variety of public and private sector projects lined up for 2013, the sector stands to generate considerable insurance premiums once these measures come into force.

ALTERNATIVE PRODUCTS: Morocco has been identified as a high-potential market for the development of takaful, or insurance products that are in compliance with Islamic principles. According to Ramses Arroub, the CEO of Wafa Assurance, “In Malaysia, takaful has a market share of 10-15%. This figure could be a goal for the industry in Morocco.” Under takaful, the insured pay a contribution into a pool, managed by the insurance company, which can be drawn upon for claims. Takaful contracts are structured differently from conventional remunerative insurance contracts, and are instead based on donation and mutual undertaking.

While there is significant potential for the development of alternative products, this will also require an important structural adjustment. In recent years, banks have made some efforts to market takaful, but they have experienced limited success within the context of conventional banking. Consensus is growing in the industry that a separate distribution channel is necessary for this sector to flourish. A draft revision to the banking law is under discussion in parliament, which would facilitate the development of takaful products and require existing financial organisations to set up a separate takaful arm. The document was expected to pass before year-end 2013, as the development of Islamic financial products was one of the campaign platforms of the current government.

International firms, particularly from the Gulf, have shown interest in entering the takaful market in Morocco. Opening up this sector to foreign companies would be an important source of investment, and strengthening economic cooperation with countries in the Gulf would also help to reduce Morocco’s exposure to economic stagnation in Europe. And yet, authorities are cautious of protecting nascent domestic firms from competition with larger, more well established foreign institutions. The implementation of a domestic takaful industry may take some time as lawmakers work to find a balance between these two interests.

GOING ABROAD: As companies strive to maintain their share of the competitive domestic market, international expansion presents an interesting growth opportunity for Moroccan insurers. Local banks picked up the pace of expansion in neighbouring African markets in the past decade, paving the way for insurance companies. Given the development of the insurance industry, it has a considerable amount to gain from moving into markets in sub-Saharan Africa, where low penetration rates present great opportunities for growth.

The Inter-African Conference of Insurance Markets (Conférence Interafricaine des Marches d’Assurance, CIMA) includes 14 countries and represents premiums of €169.2m in non-life and €125m in life insurance. Arroub said, “Key criteria for deciding to enter the market include its size, the quality of existing regulations – which is the same across the CIMA region – and the quality of the staff, which in sub-Saharan Africa is good.”

Some insurance companies are solidifying their position on the regional market. Wafa Assurance is one example of bank-accompanied expansion. The insurer has largely expanded into Africa in collaboration with its partner, Attijariwafa Bank, which purchased five banks in the Congo, Senegal, Cameroon, Gabon and Côte d'Ivoire in a €250m deal with French bank Crédit Agricole in November 2008. Wafa Assurance concluded an agreement in September to acquire a 75% stake in Côte d'Ivoire’s Solidarité Africaine d’Assurance (SAFA). SAFA is currently a non-life insurance company, but will expand into life insurance by partnering with Attijariwafa’s local subsidiary, Société Ivoirienne des Banques.

Several expansions have also taken place through the direct acquisition of existing foreign firms. In 2010 CNIA Saada’s parent company, Saham Finances, acquired the third-largest insurance group in the West and Central African region in terms of premiums, Colina, which holds 15 insurance companies in 11 countries.

National reinsurer SCR is developing its presence abroad. According to its estimates, about Dh750m (€66.6m) of its total turnover of Dh3bn (€266.7m) in 2011 came from its international operations. The SCR is now the largest reinsurance company in the Arab world, in terms of premium levels, and the second largest in Africa. Standard & Poor’s maintained SCR’s rating of BBB/stable in October 2012, and indicated that its outlook may be revised from negative if international earnings surpass one-third of total turnover.

BOURSE ACTIVITY: Insurance firms and pension funds are the largest investors in the Casablanca Stock Exchange (CSE) by volume. The sector’s stock investments exceeded Dh100bn (€8.89bn) in 2010, representing half of insurance companies’ total investments. However, the performance of the bourse has weakened in recent years, and 2012 was the third consecutive year that the CSE was in the red. Overall market capitalisation shrank to Dh472.2bn (€41.97bn) by June 2012, down 7% from the first quarter. The composite Morocco All Share Index, a value-weighted index made up of all 75 listed firms, reached 9733.62 points in December, down 11.73% from January 2012. Until the stock market performance improves, insurance companies are investing more in treasury and, to a lesser extent, corporate bonds to reduce risk.

The stock market also represents an important source of capital for insurance companies. Three insurance companies (Wafa Assurance, Atlanta and CNIA Saada) are listed on the CSE, as is one insurance broker ( AgmaLahlou Tazi). CNIA Saada is the most recent addition, generating Dh644.7m (€57.3m) through its initial public offering in November 2010. However, while insurance stocks saw a positive performance in 2011, the overall sector index fell by 11.04% during the first 11 months of 2012 to reach 3613.62 points.

As part of ongoing sector reforms, measures have been adopted to protect assets. In mid-2012 the regulation of insurers’ investments was modified to promote more stable investment vehicles by limiting the amount firms can invest in corporate bonds to 70% of technical reserves. The new rule also aims to increase the security of investments by differentiating between stocks of listed and non-listed companies. Investment in non-listed firms is limited to 5% of insurer’s reserves, while investments in banks and publicly listed companies can go up to 12.5% of technical provisions.

OUTLOOK: Morocco’s already well-developed insurance market is expected to continue to expand in the medium term, accompanying growth in sectors such as real estate, construction and manufacturing. As local insurers work to develop a wider array of products, the government is working to implement new legislation that will increase adherence and access to insurance policies in a variety of sectors and across income groups. Growth in the domestic market may take some time as the structure is put in place to reach a greater segment of the population, while expansion into other African markets presents a more immediate growth opportunity for companies positioned to expand operations.