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Consolidation frenzy for insurance market in Morocco and Algeria
Source: BI-ME , Author: BI-ME staff
Posted: Tue October 23, 2007 12:00 am

MOROCCO. The insurance industry in Morocco has been undergoing an important consolidation phase in 2006. Today, only five companies operate in the sector. Essaada has been acquired by Saham, which has long been a major shareholder in CNIA. The two largest insurers are RMA-Wataniya and Axa Assurance Maroc. What is left is a 49% stake control by ONA in the insurer AXA.

The insurance sector in Morocco has long been going through adjustments. The various movements in the industry that began in the late 1990s led to the establishment of two large entities, RMA-Watanya, created as a result of the double merger of Al-Watanya and Alliance in 2000, before that entity merged again with RMA in 2005, and then AXA Assurances Maroc, originating from the merger of the Compagnie Africaine and Axa-Al Amane.

This consolidation frenzy continued into later years, notably in 2005 when the Groupe Arig, controlled by CNIA was sold to Groupe Saham, followed by the sale of a 40% stake in Atlanta-Sanad controlled by Holmarcom to the Caisse de Dépôt et de Gestion (CDG).

As a result of these mergers and acquisitions the number of players of critical size in Morocco fell to five. The companies are RMA-Al Watanya, Axa Assurances Maroc, Wafa Assurance, Atlanta-Sanad and CNIA-Essaâda. The other companies are essentially small operations that may end up absorbed by some of the five in search of larger scope and scale.

With such concentration, RMA-Al Watanya was the largest by the end of 2005 in terms of premium payments, as it disbursed MAD 2.88 billion that year, followed by Axa Assurances Maroc with MAD 2.19 billion, Wafa Assurance with MAD 1.62 billion, and CNIA with MAD 1.14 billion. With Essaâda’s MAD 887.4 million, the new entity totaled (CNIA-Essaada) totaled MAD 2 billion and ranked third, outranking the Attijariwafa Bank’s insurance arm (Atlanta-Sanad) with its MAD 1.58 billion.

But changes in the market are not over yet and there is a big question mark as what transformation will take place year and in 2008. Observers say while the most recent mergers and acquisitions have greatly benefited the consumers, what will come is likely to make it even better for them. The move from a fragmented small-player industry to a sector dominated by large entities is seen as a catalyst to cost reduction through economy of scale.

While the big five are expected to reap the benefits of their realignments, there is a great sense of fear among them that they could soon be challenged by the expected entry of American insurance companies, as a result of the free-trade agreement the US and Morocco have signed.

Finally, it remains unclear whether Sanad and Atlanta would merge and CNIA and Essaâda would do the same, as many have been speculating. The entry of American companies is likely to accelerate a new wave of mergers and could disrupt the calm the market has long been seeking.

Meanwhile, although opened to the private sector a decade ago, the promising Algerian insurance market is growing at a slower pace than initially hoped. Despite operating in a much bigger economy, the insurance sector in Algeria is still smaller compared to neighbouring Morocco and Tunisian in terms of value and growth. While the insurance market has displayed some pattern of positive growth, it remains largely inconsequential given the size of the economy and the expected role of insurance.

In December 2005, the revenue generated by insurance companies in Algeria amounted to DZD 42.2 billion, a more than 14% rise year on year. While the growth was in double digit, industry officials lament, and rightly so, that the value is not on par with the size of the economy. The top ranking insurance categories remain by far automobile and individuals insurance. They have generated the highest growth rates, driven, in the case of the automobile insurance by the growth of auto loans which require a more comprehensive insurance coverage.

The auto insurance category accounted for 44.4% of insurance sales in Algeria in 2005, up from 41.6% the previous year. In the case of individual insurance, it has been driven by the mandatory travel insurance imposed by some European countries for Algerians wanting to travel there. Insurance in the transport sector held the third position in sales terms with 10.2% in 2005 versus 11.6% in 2004. The most noticeable laggard is agriculture insurance, which share of sales dropped from 2.7% to 1.9%.

From an organisation standpoint, the insurance industry has a diversified offering with 16 companies competing for business. Four companies are wholly owned by the state. They are SAA, CAAR, CAAT, and reassurance firm CCR. The private sector is present with seven firms. They are Trust, CIAR, 2A, Baraka Ouel-Amane, Rayan, GAM, and Alliances, along with two cooperatives, CNMA and MAATE, and three specialized agencies, the SGCI, CAGEX, and CASH.

This industry structure is largely the result of government liberalisation in a policy shift voted in parliament in 2005, revising ordinance 95-07. The primary goals of this reform was to reinforce the governance and management techniques in state-owned companies, the cleaning up and streamlining of the auto insurance branch with the help of foreign expertise, and finally the establishment of tax incentives that would enable the flow of money into the sector. This reform initiative used Algeria’s decade-long experience that ended in 2005 as a base of analysis.

During that decade, the national insurance system was characterized by a series of shortcoming and weaknesses, including the heavy reliance on damage-related activities as 95% of paid premium concentrated on the risks of damage. This is while the human risk element accounted for 5%. In addition, the culture of insurance was not well absorbed in Algeria, judging by the fact that half of what was insured during that period was mandatory and not voluntary. Industry reformers had hopped that the share of voluntary insurance activity would eventually pick up, but it did not.

The economics of the reform’s outcome were also not so upbeat. Indeed companies financial results were restrained by structural weaknesses, including in the area of human resources, coupled with a weak supervisory function at the authority level.

In this latest attempt to boost the performance of the sector, policy makers hope the insurance distribution channels would expand beyond the traditional ones and into a retail format, to include offerings at bank’ tellers and other financial retail networks. The market is also open to foreign companies. Acknowledging the need to improve the financial results of the companies, lawmakers decided to completely liberalise the capital of insurance companies during their establishment.

Still, the Algerian government says it will require companies to verify the origin of funds invested in them, in line with efforts to reduce or eliminate money laundering. The current reform agenda includes the introduction of a series of rules aimed at improving corporate governance and monitoring of the companies. Items in this initiative include controlling the changes in shareholding structure, a more stringent accounting of companies’ books, the establishment of an industry-wide guarantee fund, and measures dealing with bankruptcy.

The commission on insurance supervision was established by the ministry of finance and includes representatives of the Supreme Court, ministry of finance, and insurance experts. It is a watchdog, although and interestingly controlled by the government, with oversight on insurance companies activities.

 

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