Rising potential: The private sector’s market share looks set to continue expanding

Although underdeveloped by both international and regional standards, Algeria’s insurance market has seen rapid growth in recent years. Public companies dominate the sector, but private firms are gradually increasing their market share. Property and casualty products make up the bulk of premiums, accounting for 92.4% of premiums in 2011, on a total of AD79.83bn (€766.36m), while the life market share stood at 7.6%, or AD6.67bn (€64.03m). Motor insurance remains the most popular individual product line, accounting for nearly 50% of premiums in 2011. Challenges for the industry include a lack of investment opportunities for providers. This is bolstered by a requirement that firms invest half of their assets in treasury bonds. The sector has recently seen a number of important developments such as the compulsory separation of life and non-life businesses, which came into force in 2011 and which the government hopes will boost the life segment in the long term. The country also saw one of the world’s largest insurance multinationals enter the market in late 2011.

GLOBAL POSITIONING: Global reinsurer Swiss Re ranked Algeria as the 64th-largest country in the world by total insurance premiums – and the fifth largest in Africa (behind South Africa, Morocco, Egypt and Nigeria) – in its “Sigma World Insurance in 2011” report, which used estimates for 2011 figures based on the country’s 2010 penetration rate. As regards life insurance premiums, Algeria ranked 84th globally and ninth in Africa in the report, illustrating the comparative under-development of the segment. By contrast, the country was placed 58th in the world for non-life premiums and fourth in Africa. Relative measures of insurance penetration point to the low level of sector development, though the market is growing faster than the wider economy (see analysis). On a per capita basis, Swiss Re ranked Algeria 80th in the world and seventh in Africa in terms of total premiums, based on premiums of $33 per Algerian ($31 of non-life premiums and $3 for life). This stood significantly below per capita premiums in the country’s neighbours, Tunisia and Morocco, on $77 and $89, respectively, despite the fact that Algerian GDP per capita is a good deal higher than in either country. Swiss Re also ranked Algeria 84th in the world in terms of premiums as a proportion of GDP, based on an overall penetration rate of 0.7% (0.6% for non-life premiums and 0.1% for life premiums), compared to 1.8% for Tunisia and 2.9% for Morocco.

The National Insurance Council’s (Conseil National des Assurances, CNA) figures for 2011 total premiums and preliminary Ministry of Finance (MoF) figures for GDP for the year put insurance penetration slightly lower, at approximately 0.6%.

As of June 2012 there were 23 insurance companies active in Algeria, 10 of which were state-owned firms, 10 private and three mutual. During the first quarter of 2012, publicly owned insurance firms held a market share of 70.2% (70.9% for property and casualty, and 54.2% for personal insurance), down slightly on the 70.6% recorded in the same period in 2011.

PUBLIC ENTERPRISES: Almost half (10) of Algeria’s 23 insurance providers are publicly owned, of which four are property and casualty firms, three are new life insurers, two are specialised in credit risk and one is a reinsurer. The four state-owned property and casualty firms, which together continue to dominate the sector, are the Algerian Insurance and Reinsurance Company (Compagnie Algérienne d’Assurance et de Réassurance, CAAR), which was established in 1963 and which previously had a monopoly on industrial risks; the Algerian Society for Insurance (Société Algérienne d’Assurance, SAA), which was created through the nationalisation of a previous Algerian-Egyptian company in 1966 and which initially focused on car and personal insurance; the Algerian Transport Insurance Company (Compagnie Algérienne d’ Assurance Transport, CAAT), which was set up in 1985 to focus on transport insurance; and the Hydrocarbons Insurance Company (Compagnie d’Assurance des Hydrocarbures, CASH), which was created in 1999 to focus on the energy sector, although it has since expanded to cover a variety of industrial risks.

BY THE NUMBERS: SAA, CAAT and CAAR remain dominant, taking the top three spots in terms of market share. According to CNA statistics, SAA was the industry leader in 2010, with a market share of 24.6%, followed by CAAT, with 17.2%, and CAAR, with 15.7%, giving them combined control of over half of the market (57.5%). All four state-owned property and casualty firms generated profits in 2011; these stood at AD2.53bn (€24.29m) for SAA (on turnover of AD62.86bn, or €603.46m), AD1.77bn (€16.99m) for CAAR (on turnover of AD38.74bn, or €371.9m), AD1.22bn (€11.71m) for CAAT (on turnover of AD40.2bn, or €385.92m) and AD496.66m (€4.77m) for CASH (on turnover of AD30.08bn, or €295.68m).

The three publicly owned life firms are all affiliates of the three major state property and casualty firms (CAAR, SAA and CAAT) that were recently created as part of new requirements for firms to spin off their life businesses into separate companies. These are CAARAMA, the life unit of CAAR; the Society for Welfare and Health (Société d’Assurance de Prévoyance et de Santé, SAPS), a life joint venture between SAA and French firm Macif; and Taamine Life Algérie, the life subsidiary of CAAT. The two firms specialising in credit risk are the export credit-focused Insurance and Export Guarantee Company (Compagnie Algérienne d’Assurance et de Garantie des Exportations, CAGEX) and the property-focused Society for Home Credit Warranty (Société de Garantie du Crédit Immobilier Algérie). The remaining state-owned insurer is reinsurance firm Central Reinsurance Company ( Compagnie Centrale de Reassurance, CCR).

HISTORY LESSON: The dominance of the state-owned firms can be partly attributed to the history of the Algerian insurance market, as between 1966 and 1995 the government had a monopoly on insurance. Since then, none of the state-owned firms have been privatised, leaving new private companies to try to gradually win market share from the public enterprises that previously had the industry to themselves. Furthermore, the fact that the economy remains heavily state-driven also explains the dominance of the state-controlled companies. “Generally public firms go to public insurers,” Abdelkrim Alilat, the commercial director of resources at private player GAM Assurance, told OBG. “In some cases they have been instructed to do so, but there is also a tendency in the state-owned sector to work with other public firms.” In a press interview in March 2012 Hassan Khelifati, the CEO of Alliance Assurances, said the conditions set for insurance contracts by public enterprises often de facto exclude private players by specifying, for example, that applicants must have been in business for at least 15 years. However, most private insurers are younger than that, with the sector only opening up to private involvement 17 years ago.

Khelifati noted that in some cases public banks demand their clients use public insurers. The issue is less of a problem in smaller public institutions and enterprises, according to Alilat. “Medium-sized public institutions such as hospitals and municipalities have some freedom to work with private insurers and do so to a significant extent,” he said. Private industry players argue that the dominance of the public sector is unhealthy for competition. “At the moment the market is not very competitive in some respects as publicly owned companies are not constrained by the need to turn a profit,” said Khelifati.

INVESTMENT: With regards to the private sector, there are seven property and casualty firms, as well as four life companies. There are also two mutuals, one of which is the National Agricultural Mutual Fund (Caisse Nationale de Mutualité Agricole, CNMA), specialising in agricultural insurance. The other is the Algerian Mutual Insurance Fund for Workers in Education and Culture (Mutuelle Assurance Algérienne des Travailleurs de l’Education et de la Culture, MAATEC), which provides insurance to the education sector. One of the first private companies to launch following the liberalisation of the sector in 1998, the International Insurance and Reinsurance Company (Compagnie Internationale d’Assurance et de Reassurance) was the largest private sector firm in 2010, with a market share of 7.3% (ranking it fifth overall), just ahead of CNMA, with 7%, Alliance Assurances, with 4.2% and L’Algérienne des assurances (2A), with 3.7%.

The private segment of the industry includes a number of foreign-backed firms. The largest of these is GAM Assurance, with a market share of 3.6% in 2010. The company is owned by the US-based Africa-focused investment fund ECP, which acquired the firm in 2007, when it was experiencing financial difficulties. The insurance company is primarily focused on individuals and to a lesser extent small and medium-sized enterprises (SMEs), generally eschewing the large-scale corporate and industrial risk market.

NEW ON THE BLOCK: The most recent private firm to launch in the country is the Algerian affiliate of French insurance major AXA, the largest insurer in the world by net premiums written, according to credit rating company AM Best’s rankings. AXA Algeria operates both Assurances Algérie Dommage and AXA Algérie Assurances Vie, respectively its Algerian non-life and life insurance firms, and began operations in the country in December 2011. AXA holds a 49% stake in the Algerian venture and is partnered with the National Investment Fund (36%), a state institution that provides financing for projects that help develop the national economy, and the External Bank of Algeria (15%), the country’s largest bank. The firm, which has started out focusing on the car insurance segment, plans to open 30 branches by the end of 2012 and reportedly aims to achieve a turnover of some €10m, which would give it a market share of around 1%. With regards to longer-term goals, AXA hopes to become one of the three largest Algerian firms within six years.

Although competition looks set to grow, some private sector players say the arrival of the French major will have a positive effect on the country. “AXA’s entry will shake up the market and make it develop new products,” Alilat said, but added that this may take time given the regulatory environment. “The private sector is currently fairly weak, but its market share will continue to increase, and when it becomes stronger, the industry will see many changes.”

Another foreign-backed player Salama Assurances, an Algerian affiliate of the Dubai-listed Salama Islamic Arab Insurance Company, is the only takaful ( sharia-compliant insurance) firm operating in the country. The company, which began operations in 2000, had a market share of around 3% in 2010, based on a turnover of AD2.54bn (€24.38m). Its business is concentrated primarily in the car insurance segment, though the firm is planning to launch a life affiliate and has been given permission by financial market regulator Organisation and Oversight Commission for Bourse Operations (Commission d’Organisation et de Survéillance des Opérations de Bourse, COSOB) to raise capital to do so via an initial public offering (IPO). Al Baraka, the country’s only Islamic bank, reportedly has plans to launch takaful operations in the future.

BANCASSURANCE: The legal framework for bancassurance was put in place in 2006 as part of wider regulatory reforms. As a relatively new field of activity, the segment remains small; in 2009, turnover stood at some AD40m (€384,000), a small fraction of total insurance premiums. Indeed by 2011, bancassurance held just 1% of market share. However, industry players believe it is set to grow rapidly. “Bancassurance will likely have taken off properly within two to three years,” said André Dieu, the head of the operations division at French-owned bank Natixis, which is considering entering into the segment. One of the most active companies in the segment is Cardif El Djazaïr, the wholly owned life insurance unit of BNP Paribas El Djazaïr. The firm relies mainly on banking outlets (at BNP Paribas El Djazaïr, CNEP Banque and Cetelem) to sell its products and does not have its own distribution network. Meanwhile, the involvement of the country’s largest bank, Banque Extérieure d’Algérie, AXA’s new affiliate in Algeria also offers potential.

OTHER PLAYERS: Standard insurance brokerage is limited to Algerian nationals. The CNA website lists 25 insurance brokers and 16 foreign reinsurance brokers. According to Nourredine Mameri, the director of studies at the CNA, there were 625 licensed insurance agencies selling policies on behalf of providers in return for commissions in 2010, with a network of 755 points of sale. Direct sales are more common than sales by agencies, and brokerage activity in particular is relatively weak, at around 5% of premiums.

“At the moment, brokerage is not well established as a profession in Algeria,” Mameri told OBG. GAM’s Alilat confirmed, “Some 80% of our turnover comes from direct sales,” adding that most sales by the largest state-owned insurers are also direct. He noted, however, that other private firms tend to use agents more heavily than GAM does.

The only full reinsurer is state-owned CCR, to which Algerian insurers are obliged to cede 50% of their business. The company’s gross written premiums stood at AD13.5bn (€129.6m) in 2011, up 38% on the previous year, while profits stood at AD1.8bn (€17.28m).

INDUSTRY OVERSIGHT: The industry is regulated by the Directorate of Insurance at the MoF. The sector is supervised by the Insurance Oversight Commission (Commission de Supervision des Assurances, CSA), established in 2006 as part of major reforms overhauling the sector, and active since 2008. The CSA is responsible for ensuring the implementation of laws and regulations affecting the sector and supervising insurers, brokers and agents; the body also licenses insurance firms. The CSA is controlled by the Treasury Department of the MoF (the director-general of the treasury is also the president of the CSA).

Some private insurance companies have pushed for the creation of a regulatory body that is independent of the treasury and the government, arguing that the fact the state owns a large number of insurance firms means a treasury-backed body cannot be a fully impartial regulator. Nevertheless, some in the industry say the authorities have been responsive to the sector’s needs. “There is a dialogue with the authorities – it can be slow, but it is there,” Alilat told OBG. “There is a young team in place and they are open to industry concerns.”

REFORM: A major regulatory overhaul took place in 2006 in the form of a new law that, among other things, established the CSA, created the legal framework for bancassurance and mandated the separation of life and non-life business, requiring firms to spin off their life businesses into new companies or withdraw from the life market. The authorities gave companies until June 2011 (extended from the initial deadline of March that year) to implement the changes. According to the CSA, the aim of the reform was to boost the comparatively moribund life segment by creating new companies dedicated solely to and properly specialised in the life segment. “Before the separation, not enough time was dedicated to life insurance for its promotion and development,” Mameri of the CNA told OBG. The law also mandated the creation of guarantee fund for the industry, which is financed by insurance companies, which contribute 0.25% of their premiums.

Another important recent regulatory change in 2009 saw the authorities raise the minimum capital requirement for general insurance companies from AD500m (€4.8m) to AD2bn (€19.2m) and AD1bn (€9.6m) for mutual firms. At the same time, the minimum for life insurers was increased from AD200m (€1.92m) to AD1bn (€9.6m) and AD600m (€5.76m) for mutuals. Companies operating in the country were given until the end of 2010 to meet these requirements, and all were successful, with some significantly exceeding the new conditions. To raise capital, Alliance Assurances, for example, in 2010 became the first Algerian insurance firm – and the country’s first privately owned firm – to go to the stock market and conduct an IPO, through which it raised around AD1.4bn (€13.44m) (see Capital Markets chapter).

REINSURANCE: Other regulatory changes have included an executive decree in 2010 requiring insurance companies to cede 50% of their portfolios to CCR – though the national reinsurance firm is not obliged to take the full amount, in which case firms can seek alternative arrangements. The amount had previously been set at between 5% and 10%, depending on the nature of the risk. The move has not been popular among all insurers, some of whom have voiced concerns that the CCR is not explicitly covered by state guarantees, giving rise to fears that it could be unable to meet its commitments in the event of a major disaster or series of disasters. For this and other reasons, some firms are pushing for the rate to be reduced.

“We would like to be able to do more with foreign reinsurers as they offer more advantageous conditions,” Alilat told OBG. In addition, there have also been calls for more integration and coordination of regulations in the sector. “There is a strong need for further integration in the insurance sector in Algeria, as well as harmonisation of the regulations for both conventional insurance companies and mutual insurance companies,” Ahmed Choudar, the general manager of Trust Assurance, told OBG.

EARNING INTEREST: Some firms have also been pushing for the required ratio of investment in treasury bonds to be decreased. Currently, insurance firms are required to invest 50% of their funds in treasury bonds, which have low nominal and sometimes negative real interest rates. As a consequence, profits are primarily driven by technical, rather than investment, earnings. “If the rate was reduced to 30% that would give some breathing room to the segment,” Alilat said.

“At some point the rate will probably have to be lowered to avoid the risk of strangling the sector’s development.” The remaining funds are mostly put in bank deposits, which accounted for 32% of invested funds in 2010, or invested in real estate and industrial ventures. Some firms are undertaking projects of their own. For example, Alliance Assurances is planning to invest around €100m over five years in setting up a poultry and dairy farming project in Medea province.

MANDATORY INSURANCE: Obligatory forms of insurance include third-party damage insurance for car drivers as well as natural disaster insurance for property owners. Most other compulsory lines are specific to certain activities and industries. The authorities set the price for compulsory insurance lines. For other lines, companies inform the state in advance of the prices they intend to set, to which they are obliged to adhere, though some companies complain that this requirement is rarely observed in practice.

According to the economic service of the French Embassy in Algiers, mandatory car accident liability is unprofitable due to a high level of road accidents and the low fixed price of liability insurance. This is set at AD1500 (€14), between one-fifth and one-seventh of the cost of similar insurance in neighbouring Tunisia and Morocco. The Insurers’ and Reinsurers’ Union (Union des Assureurs et Réassureurs, UAR) estimates that premiums only cover around one-third of the cost of claims in the segment. Operators argue that this is an obstacle to the development of the industry, and in July 2012 the head of the UAR, Lamara Latrous, called for the government to raise the price. “Companies cannot invest in services because the rates are not high enough and claims are rising,” Khelifati told OBG. “However, we are working with the authorities and there are some positive signs; they are listening to us and are aware of the problem.”

Another regulatory change sought by insurers concerns payment terms. Corporate clients, unlike individuals, are not required to pay for insurance contracts up front, and frequently pay in instalments. Insurance companies complain that competition for corporate business forces them to offer important clients generous payment plans and that firms are often slow in paying. Some companies are calling for the regulations to be changed to oblige corporate clients to pay for insurance upon signature of a contract.

OUTLOOK: In what remains a state-dominated economy, sector growth rates are expected to continue to be dependent to a significant degree on public works. Plans for major infrastructure projects (see Economy chapter) therefore bode well for industry expansion. Motor insurance is likely to remain the leading product for the foreseeable future, but other insurance lines look set to gradually grow their market share.

“Many business lines are either untapped or in their infancy, such as life insurance and coverage for savings. The rapid development of new infrastructure along with expanding real estate activity is also likely to lift demand for building and fire insurance.” Adelane Mecellem, the CEO of Axa Assurances, told OBG.

“Algerians are becoming increasingly interested in protecting risks and the market is becoming less about obligatory insurance,” Mameri said. The private sector is also likely to expand its share of business and though it will not overtake the public sector any time soon, it is looking to play a more important role in terms of developing new products and raising levels of service in the market, particularly as new and foreign-backed firms establish themselves in the country.