Morocco earthquake fund covered by parametric solution
Significant gap expected between economic and insured losses, says AM Best
A parametric insurance arrangement covering part of Morocco’s National Catastrophic Event Coverage Scheme is expected to be triggered by the devastating earthquake that struck Morocco on 8 September 2023, according to AM Best, and could result in a maximum payout of MAD2,750m (approximately $270m).
The Solidarity Fund for Catastrophic Events, which is the part of the scheme covered by the parametric arrangement, provides coverage to the uninsured and most vulnerable part of the population. Best also noted that since 2020, Morocco has also had in place a $275m Deferred Drawdown Option for Catastrophe Risk provided by the World Bank, which is expected to provide the country with immediate liquidity to address the natural disaster it faces.
Best said it expects a significant gap between economic and insured losses, given the low insurance coverage in the most damaged areas. For the local (re)insurance industry, Best said it expects the financial impact to be manageable with limited retention by local (re)insurers, partly as a result of adequate cession to the global reinsurance market.
According to the latest estimates from the US Geological Survey, the economic losses could be as high as 8% of the country’s gross domestic product, reaching up to $10bn.
The National Catastrophic Event Coverage Scheme established a dual mechanism for protection against natural and man-made disasters, covering earthquakes, floods, tsunamis, act of terrorism and riots.
According to Best, the first part of the scheme benefits insurance policyholders in the country through property, motor liability and personal liability insurance contracts. Since 2020, catastrophic damage has been covered by these policies, financed by a contribution between 1.5% and 8% of insurance premiums.
Best explained that the catastrophic risk is ceded via quota-share and stop-loss treaties. Moroccan insurer CAT Assurance et Réassurance has the largest gross retention as it acts as the programme’s aggregator, although the company’s losses are retroceded through non-proportional treaties with financially sound counterparties. Société Centrale de Réassurance covers the second layer of the programme, and the higher layers of the programmes are covered by a panel of global reinsurers led by Munich Re.
The second part of the scheme is the Solidarity Fund for Catastrophic. It covers bodily injury and the loss of principal residence and is financed by a 1% tax on non-life insurance contracts.
