Low insurance penetration rates, growing economies, and privatization in the financial services sector have continued to attract international insurance firms, particularly those from Europe, in developing North Africa’s domestic insurance sectors. All three Maghreb countries continue to outline new modernization programs aimed at liberalizing their insurance sectors through independent regulatory bodies, privatization of state-owned assets in the sector, and legislation encouraging market consolidation.
New and further partnership between domestic and foreign firms is paving the way for new tools, techniques, and better business practices from countries who first introduced the idea of insurance to their protectorates during colonialism. The only difference this time around is that Algerian, Moroccan, and Tunisian firms welcome the intervention and look to European experts whose capital and know-how can streamline operations in North Africa.
Algeria continues to develop its insurance sector and currently enjoys the highest penetration rate, at over 5%, among Maghreb countries. Algeria’s score is nearly triple the penetration rates for Morocco and Tunisia who both have just over 2%. According to Algeria’s Insurance Industry Association, Algeria witnessed an 8.5% growth in recent years, while 80% of insurance revenues were generated from automobile insurance, followed by fire and miscellaneous risk coverage with 19% of total revenues. With a plethora of foreign exchange earnings from increased prices in their primary export of hydrocarbons, Algeria’s government has increased public spending in sectors vital to the health of the insurance industry, including a recently initiated program aimed at investing $60 billion to help property owners acquire insurance plans, boosting penetration levels in the process.
Private opportunity
Other segments of positive growth include year-on-year increases of 40% in credit insurance and 20% in auto insurance. Other branches grew at a modest 4% rate, while agriculture actually dropped by 15%. With more public spending and less public insurance firms, foreign firms will be moving in to assist firms going private and chase around more opportunities. European firms are already betting on higher penetration rates in the years to come and are expanding operations in Algeria to obtain market share at the earliest, and most profitable, point possible.
Morocco’s own insurance market continues to outpace its neighbors, as well as most of Africa, but its sector is still far from being fully developed, so further foreign investment and domestic liberalization will continue to be the country’s main industry targets. In addition to traditional product offerings on life, accident, and car insurance, Morocco will host more shariah-compliant products in the near future. After getting the green light from Bank Al-Maghreb, the country’s central bank, in-country firms have begun to offer takaful insurance products. Experts have long awaited the entrance of Islamic finance to the country and successes are already taking root. As the insurance market develops in Morocco, the variety and amount of Islamic insurance offerings will attest to the popularity of shariah-compliant products in general.
Tunisia’s government has also continued to provide the in-country insurance sector with breathing room through new regulatory and budgetary bodies as well as a detailed modernization plan aimed at stimulating the competitiveness of domestic players against competition from abroad.
While the region as a whole maintains a healthy outlook at similar market trends, specific legislation and further definition by governments are likely to shape the type of growth in the coming years and the rate at which it will occur.
Algerian privatization
Algeria’s privatization craze launched in recent years has not left the country’s insurance market unaffected. As the country continues to search for domestic improvements and ways to strike a balance in an economy still dependent on its hydrocarbon wealth, Algerian authorities will continue to privatize firms and encourage domestic firms to become more competitive and efficient. In 2006, Algeria privatized one of the largest insurance companies, the Algerian Company for Insurance and Reinsurance (CAAR). At the time, 16 companies worked in the insurance sector, but the new balance left the two remaining large firms to fight for market share ahead of privatization plans for their own operations.
While the Algerian Insurance Company and the Algerian Insurance and Transport Company remain under government ownership in the short term, they are likely to be privatized in the medium term as the country continues its slew of privatizations in the financial services industry. Several firms have continued to operate well in Algeria since the sector was first liberalized in 1998, including the Trust Company, AA Insurance, CAAR, Al-Baraka Oua-Al-Aman, GAM, and El Ryan.
According to Mohammed Rafik Benmoufak, Director of the National Council for Insurance, “the process [of privatization] will give the Algerian market a breath of fresh air.” Looking forward, he believes large multinational companies will enter Algeria as privatization can be used to increase market diversity, stimulate investment by foreign firms, and fill gaps in the Algerian insurance market. A more competitive market is also likely to encourage public firms to economize resources and operate more efficiently, moves which will benefit citizens in the long term through premium rates and products offered.
The staggeringly low penetration rates in the country point to a possible opportunity for regional insurance firms but they also highlight the amount of risk in-country firms have taken. The president of the Algerian Insurance Brokers Union, Abdelaziz Boudraa, cited that “just over five percent of Algerian companies, particularly in the private sector, align themselves with insurance.” He continued to mention that “risk management is a concept ignored by most of our economic operators when it is vital to ensure the stability of enterprises so as to prevent companies from closing their doors from a fire or flood, which would not only be a disaster for owners but also for the country.”
Untapped private potential
In addition to the privatized and those still under government ownership are foreign firms operating or looking to branch into Algeria and grab some market share in a largely untapped market. In March 2008, France’s largest bank BNP Paribas SA launched insurance operations in Algeria through BNP Paribas’ international insurance arm Cardif. The venture between Cardif and Algeria’s Caisse Nationale d’Epargne et de Prévoyance (CNEP) will permit BNP Paribas to offer life and savings insurance through CNEP’s 200 retail branches throughout Algeria and is the first step of BNP Paribas to join the ranks of France’s Axa SA and Groupama SA, who are already operating in the country. If the preliminary contract goes well, the group will create a joint venture to cement their partnership.
Other foreign insurance firms are looking to BNP Paribas, Axa, and Groupama’s progress as an indicator of successful partnership possibilities with local firms. Insurance firms from France, Spain, Germany, and a host of other European conglomerates are also looking at the red-tape obstacles and the dynamics foreign firms face with regulatory authorities as further indicators of the insurance market’s health in Algeria.
Additionally, a second public-private partnership exists between the public insurance firm Société Nationale d’Assurances (SAA), which currently has a 28% market share of the Algerian insurance sector and its new counterpart Mutual Insurance Traders and Industries France (MACIF). SAA recently raised its capital from $69 million to $245 million. MACIF, which operates in several European markets, has a turnover of $7.46 billion. MACIF, which ranks first in France for automobile insurance with five million subscribers, and housing with more than three million policyholders, formed the third partnership of private foreign firms with an Algerian firm.
Other contracts are expected, including that of Swiss Mutual with Alliance Insurance, as well as other companies seeking Algerian partners, like Groupama Mutuelles du Mans Insurance and General Insurance France (AGF), a subsidiary of Germany’s Allianz.
Islamic insurance offerings are also popular with foreign firms, including Salam Islamic Arab Insurance Company, the principal Sharia-based insurer and reinsurer in the world, which recently, through its in-country subsidiary Salama Assurances Algeria, launched Takaful offerings.
For foreign firms, short-term results in Algeria will remain minimal and any firm entering the market must take a long-term outlook to help see through the development of the country’s insurance market. The problem with short-term visions are that governments in the region, particularly Algeria, might decide to delay privatizations of certain firms as demonstrated by Algeria when the state cited reasons of uncertainty from the sub-prime crises as the cause of delay in privatizing their retail bank Crédit Populaire d’Algerie.
However, for those with long-term visions, outlooks are optimistic as the majority of Algeria’s thirty-three million people remain to a large extent uninsured. With an insurance market accounting for less than 1% of Algeria’s gross domestic product (GDP), foreign firms might just be the necessary and sufficient impetus to the development of Algeria’s domestic insurance market.
A Parisian accord
Following a long process of negotiation between the governments of Paris and Algiers, Algeria resolved a historical political impasse with France, after the government seized French assets following Algeria’s independence from its colonial power in 1962. The nationalization of French assets in the real-estate and insurance sectors was finally solved after the Algerian government permitted five French insurance companies to sign agreements with CAAR and SAA. The accord was signed in the presence of French Minister of Finance Christine Lagarde and her Algerian counterpart Karim Djoudi.
According to the French Ministry “the accord will allow the entry into the Algerian market of the French companies, which thus will be able to contribute to the modernization of the Algerian insurance sectors.” The assets, which were seized in 1966, have been repatriated, allowing French insurance to again operate in Algeria’s market. The companies whose assets were confiscated include AGF, Axa, Groupama Mutuelles du Mans Insurance, and Aviva PLC’s.
The Casablanca game
Morocco’s insurance climate continues to outpace others in the region and on the continent. The country’s sector continues to record turnovers of greater than $1.9 billion, ranking the country second among all African states. Life insurance products have reported recent growth of 13%. However, premiums remain high, accounting for 35% of turnover in the automobile industry, 13% for bodily injury, and 9% for work accidents, but with strong growth rates of more than 7% and higher profitability levels. Moroccan insurance remains strong, but the industry is not yet a significant contributor to the country’s gross domestic product (GDP), accounting for less than 3%.
Since 1999, when the sector began a consolidation period, transparency has risen, particularly in response to continued consolidation of firms as mandated in the insurance code, which was updated in 2005. Industry experts see Moroccan insurance as a growth industry with plans in the works for sector upgrades, improvements in insurance legislation, and compulsory health insurance planned for Morocco’s population.
According to Al Wataniya’s CEO Chraibi, Morocco’s economy is under pressure from the international economy to develop and liberalize its financial service sectors, including insurance. On this note, he believed that “it therefore became necessary for us to know exactly where our companies have reached the state of development required.” For Moroccan insurers, critical mass in market share is necessary to stay efficient, which might lead some smaller firms to partner into larger companies.
For Benwahoud Faraj, who heads a brokerage firm, “consolidations taking place currently meet a constraint rather than a voluntary approach on the part of local insurance companies.” He added that “this strategy is perfectly consistent with the free trade agreements signed with the European Union and with the United States.” From fear of foreign insurance giants settling in Morocco after market liberalization following the dismantling of trade barriers, local companies contracted alliances to acquire a certain critical size.
The composition of the Moroccan market include four main companies accounting for over 60% of market share and are the only firms who exceed $160 million in turnover. Among them include RMA-Watanya with a 23% market share, AXA Insurance Morocco with 17% of the market, Wafa Assurance with 13% market share, and CNIA, which accounts for 9% of market share.
Continued capital restructuring in the industry has boosted RMA-Watanya’s position. Bahrain’s ARIG recently sold CNIA to Morocco’s own Saham Group. Saham acquired further market share through its CNIA subsidiary when the group purchased Es Saadi in 2006, giving Saham a total market share of 16%.
Although the sector remains young in Morocco, the new regulatory policy has piqued the interest of several firms who view Morocco as an untapped market. Recently, the Emirati-based Takaful Re expressed interest in the Moroccan market. The firm, created in 2004, is looking to team up with Casablanca-based Sigma Insurance. In March, Takaful Re’s CEO Chakib Abouzaid visited the country to scout possible opportunities, while Sigma executive Brahim Aakaf maintained that “the Moroccan market presents interesting development potentials for this type of insurance product.”
Tunisia’s modernization
Tunisia’s Minister of Finance Mohamed Rachid Kechiche recently partnered with AGF-Allianz’s CEO Francois Thomazeau to strengthen cooperation between the government and Tunisia’s insurance companies. Both Kechiche and Thomazeau plan to raise awareness of the country’s investment potential while Kechiche called for strong ties between Tunisia and France to assist financial and technical exchanges and further cooperation.
Boudraa drove home the point of technical assistance, both intra-industry, and inter-industry, in a 2007 press conference when he explained “insurance no longer relies solely upon the tradition role of reimbursing a company in the event of disaster, but on the contrary, as it may advise and train entrepreneurs to better manage their institutions so they avoid inconveniences.”
Among the most crucial aims of Tunisia’s modernization program for the insurance industry is improving regulatory and institutional frameworks, improving the capital base of insurance companies, developing the sector’s human resource, improving management best practices through internal reforms, as well as modernizing the marketing of insurance products.
In terms of volume, Tunisia’s auto insurance industry is the most important sub-sector of the country’s insurance industry, accounting for 43% of total turnover in the sector during 2006. The industry includes mandatory liability insurance, which has increased from $269 million in 2005 to $302 million in 2006 for a 13% growth.
Recent reforms in Tunisia are aimed at harnessing the continued successes and growth of the country’s insurance sector. In February, Tunisia’s legislature amended the country’s insurance code, which seeks to strengthen the capacity of firms to reform the sector. The amendment also helped the country stay on track with commitments to reform, including those outlined as part of World Trade Organization (WTO) guidelines. The new framework is aimed at helping harness growth in cumulative investments in the country’s insurance sector, which reached $1.3 billion in 2007, slightly higher than its 2006 level at $1.2 billion.
The most important change from the new code is a new, independent supervisory authority for the insurance sector. With an independent budget and mandate independent from the government, the authority will be able to conduct its work through a general committee on insurance. The committee’s budget is funded from the insurance sector but the composition of its leadership is sector-neutral in that individuals chosen have no links with insurance companies, regulators, or investments, according to the description given by Tunisia’s Finance Minister Kechiche Mohamed Rachid on the new body.
The new legal framework encourages companies to merge to stave off competition. By rising the minimum capital requirement to continue operating, smaller insurance firms in Tunisia will be forced to partner with others and focus on scale and efficiency, which, in the long run, will increase their competitiveness against large and foreign firms.
