Morocco: top of the rankings

Physically sited at the top of Africa, Morocco also holds sway as one of the most dominant countries in Africa economically, something that is reflected in a well-balanced insurance market, as Liz Booth reports

Morocco is often considered second in insurance markets across Africa, behind only South Africa. The north African country has positioned itself as a giant in terms of African players and the Moroccan insurance sector considers itself a hub for the local region.

The country was impacted heavily by the Covid-19 pandemic, however, and is only slowly emerging from its effects. Omicron has knocked the area back and Morocco was, again, one of the first to impose travel restrictions.

The good news is that half-yearly 2021 data for the insurance sector shows an improvement in performance compared to the first six months of 2020 when the Covid-19 crisis first hit.

According to the data published by the Supervisory Authority for Insurance and Social Welfare (ACAPS), the market has recorded a turnover of MAD28.169bn ($3.15bn) in the first half of 2021, which represents a 3.08% increase compared to the MAD27.326bn ($2.7bn) recorded at the end of June 2020.

With a 56.3% market share, non-life premiums are progressing by 11% to reach MAD15.868bn ($1.77bn). The life activity is posting a 14.2% growth of its turnover with MAD12.301bn ($1.37bn). This class of business accounts for 43.7% of the total premiums underwritten in Morocco at the end of H1 2021. This compares with, say Tunisia, where 2020 premiums amounted to $948,936 in the whole of 2020.

High risk level
It is not all good news: according to AM Best, the country as a whole has a high level of risk, factoring in economic, political and financial system risk, although it remains a slightly lower-risk territory than its neighbours Algeria, Libya and Egypt.

The ratings agency says that political instability weighs heavily on the outlook, as does debt, particularly that incurred as a result of the Covid-19 pandemic in 2020. It cites Algeria and Tunisia as having less manoeuvrability, in particular, leaving Morocco to have fared a little better.

The Moroccan economy has traditionally relied on agriculture, accounting for 15% of GDP and employing 50% of the population. Manufacturing and services have grown to account for 70% of GDP but tourism in particular was hit hard by the pandemic.

The country ranks 53rd out of 190 countries in the World Bank’s Ease of Doing Business Index and 80th out of 180 in Transparency International’s Corruption Perception Index, highlighting the need for additional reform, says AM Best.

In May this year, Fitch Ratings affirmed Morocco’s BB+ rating, saying it was underpinned by a record of macroeconomic stability reflected in relatively low inflation and GDP volatility pre-pandemic, a moderate share of foreign-currency debt in total general government (GG) debt, and relatively comfortable external liquidity buffers. These strengths are balanced against weak development and governance indicators, high GG debt, and budget and current account deficits that are wider than ratings peers.

Insurance market
When it comes to the insurance market, Fitch ratings said it considers insurance regulatory oversight in Morocco as somewhat weak. The insurance market is regulated by ACAPS, an independent organisation founded in 2016.

The ‘solvabilité basée sur les risques’ (SBR) project is expected to bring the Moroccan solvency regime close to Solvency II standards. The enforcement of SBR would be positive for regulatory oversight, Fitch believes, as the current regulatory solvency requirements are not risk-based.

However, it does not expect SBR to be implemented until at least the end of 2022. Fitch confirmed: “The Moroccan insurance market is well developed compared to regional peers, as it ranks second in Africa by premium volumes. Fitch expects insurance penetration to continue to increase in the medium term in the country, driven by life-business development.”

It added that the Moroccan insurance sector is adequately diversified, as premiums in 2020 were divided between life (45%) and non-life (55%). The non-life business mix is dominated by motor insurance (48% of non-life premiums in 2020), while life premiums are mostly traditional savings, with high growth potential in other life branches.

Fitch also pointed out that the Moroccan insurance sector is highly concentrated, particularly on the life insurance side, where three companies wrote 67% of the business in 2020. The reinsurance sector is highly competitive, with two local reinsurers and more than 30 foreign reinsurers operating in the market.

In terms of individual companies, the ratings agency again affirmed the AAA (mar) financial strength rating of Société Centrale de Réassurance (SCR). The outlook is stable. The ratings agency justified its decision by saying SCR is the dominant company in the Moroccan market, with strong capitalisation and a good financial performance.

In 2020, the Moroccan reinsurer reported a combined ratio of 94%, which improved by one point compared to 2019. Return on equity also improved, to 12%, compared to 11% in 2019.

Meanwhile, another player, Saham Assurance Maroc, is to be renamed Sanlam Maroc, after South African giant Sanlam bought Saham back in 2018. An extraordinary general meeting to confirm the change will be held on 28 December 2021. As of 30 September 2021, the Moroccan insurer achieved a turnover of MAD4.35bn ($476.5m), which represents an increase of 9.5% in the past year.

There is a real drive to improve insurance takeup across the north African country. The president of the Moroccan Federation of Insurance and Reinsurance Companies, Mohamed Hassan Bensalah, recently called on insurers to expand their distribution channels, saying these must evolve through digital and other physical networks such as phone operators and payment organisations.

He said the Covid-19 pandemic has forced insurance professionals to reinvent themselves and adopt new methods. Now, he added, it was time for insurance intermediaries to also accelerate their digital transformation.

Distribution has been cited as one of the main challenges facing the sector, along with collection and repayment of premiums and competition. Bensalah has called for changes in the year ahead to make the sector more resilient.

Takaful insurance
Growing the market and accessing new populations has resulted in the development of Takaful insurance. On 25 October 2021, new rules came into play with ACAPS publishing a circular on the application of Insurance Code measures related to Takaful insurance.

The first chapter is devoted to the Takaful insurance contract and management regulations of the Takaful insurance fund, while the second chapter deals with Takaful insurance and reinsurance companies. It sets out the administrative regime for these companies and the financial system of the Takaful insurance fund, as well as regulating companies that exclusively carry out reinsurance operations and their governance system.

The first branches of takaful business will be mortgage Takaful, consisting of death cover for the borrower, multi-risk residential property cover and savings products.

Reports suggest there is a large untapped market, with real estate ‘murabaha’ financing amounts totalling about MAD16bn ($1.7bn), without any cover available as yet for the death of borrowers. ACAPS and the Higher Council of Ulema hope other Islamic insurance products such as work accident, group life and illness. will follow.

Issam Achiki, head of the monitoring and standardisation department of ACAPS, has been reported as saying that the insurance regulator is now vetting applications for Takaful licences. He says that if the applications of those seeking licences are in order, a “reasonable time” for the effective start of Takaful business activity to take place would be at the beginning of 2022.

Cyber insurance
Like most insurers worldwide, Moroccan insurers are grappling with cyber cover. Capacity is reported to have fallen back in the past year after a poor loss record from repeated cyberattacks and ransomware.

According to a 2021-2022 whitepaper on the European, Middle Eastern and African insurance markets released by SIACI Saint Honoré group, a European provider of insurance risk management consulting and brokerage services, this market situation is expected to continue for the next two years. Reinsurers will continue to be very selective about the risks they write and the capacity deployed will also be reduced.

“We have seen an average rate increase of around 30%, with some customers having to absorb up to 100% of the rate increase. The trend is expected to continue with an average increase of around 20%-25% for the next year,” states the whitepaper.

The whitepaper explains that data breaches in the MENA region are known to be particularly costly, well above the global average cost of $3.86m. It cites a lack of awareness and commitment to cybersecurity and warns that, in addition, many businesses still operate without a solid business continuity and disaster recovery plan, resulting in longer downtime and affecting more customers when these attacks occur.

The report points out that the local market has very limited capacity, with the exception of a few regional players that have cyber capacity of about $5m, while the reinsurance market is led by a few multinationals whose capacity has been reduced. As a result, it said, underwriters are extremely cautious in terms of exposure.

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