Long-Term Growth Prospects Look Good For The Maghreb Insurance Industry

Transcription

1 Long-Term Growth Prospects Look Good For The Maghreb Insurance Industry Primary Credit Analyst: Samira Mensah, Johannesburg (27) ; Secondary Contact: Lotfi Elbarhdadi, Paris (33) ; Table Of Contents Nonlife Dominates The Insurance Market In The Region Different Stages Of Maturity Across Countries Low Penetration And Mounting Demand Will Fuel Growth Despite Economic Uncertainties A Regulatory Push And Government Policy Will Drive The Sector's Transformation Insurers That Standard & Poor's Rates In The Maghreb Region Related Research JULY 29,

2 Long-Term Growth Prospects Look Good For The Maghreb Insurance Industry In Standard & Poor's Ratings Services' opinion, the insurance markets in the Maghreb region (Algeria, Morocco, and Tunisia) have good long-term growth prospects despite short-term economic uncertainties. Our opinion reflects the increasing need for life and health insurance products in those countries as well as some largely underdeveloped personal lines, such as property. Mounting needs from the middle class, investment in infrastructure, and regulatory changes to increase insurance penetration constitute the main drivers of our expectations. Overview Low insurance penetration and increasing demand for life and health insurance should support insurers' premium growth in Algeria, Morocco, and Tunisia over the next three years. Nevertheless, growth prospects vary across the three markets given their different operating and regulatory environments and government policies. We believe Maghreb insurers will continue to be largely oriented toward property/casualty business in the next five years. Market characteristics and competitive dynamics differ across the three countries. For example, state ownership in insurance companies is winding down in Morocco, but it remains relatively high in Algeria. The diversification of business lines reflects each country's economic structure. That said, we anticipate that motor will remain the largest business line in the Maghreb insurance markets in the foreseeable future. We see greater growth for industrial lines in Algeria, largely because of infrastructure projects driving up the economy. Meanwhile, personal lines are likely to develop faster in Morocco, supported by a developed bancassurance market and a supportive sector transformation programme supported by the state (Contrat Programme). In Tunisia, economic uncertainties following the Arab Spring of 2011 will continue to temper growth. However, we expect personal lines to pick up once the economy recovers. Nonlife Dominates The Insurance Market In The Region The industry is mainly dominated by motor and property insurance. Motor remains the largest business line in these three countries and should continue to dominate due to its compulsory nature and as the number of registered vehicles rises. Industrial lines are the second largest business lines in the region, with the notable exception of Morocco, where life insurance is the second largest Different Stages Of Maturity Across Countries Algeria: Largely unexploited potential The penetration of insurance products in Algeria is significantly lower than the average penetration rate of 1.5% in other Maghreb countries. Algeria's gross written premium (GWP) was less than 1% of GDP in 2012 compared with JULY 29,

3 3.5% for Morocco. Premium volumes increased to 98.8 billion Algerian dinar (DZD) in 2012 from DZD86.56 billion in Motor insurance dominates the sector, having accounted for about 60% of the market in Property, which makes up 25% of P/C, is also good contributor and is supported by state-financed projects. The Algerian life insurance segment is still nascent. It accounted for 5% of the total industry's GWP in 2012, but is projected to grow further. Life and savings constitute about 10% of total premium. The modest share of life business stems largely from underdeveloped specialized networks, such as bancassurance, and limited product offerings. Foreign players continue to show interest in the Algerian market. For instance, France-based AXA, MACIF (not rated), and BNP Paribas have interests and partnerships in local insurers. Table 1 Algeria: Competitive Landscape Statistics (Bil. DZD) Nominal GDP 8,464 9,306 10,994 10,136 11,768 11,044 9,968 11,992 14,520 15,843 Nominal GDP (% change year-on-year) (7.8) 16.1 (9.7) Money market rate Consumer price index (% at year-end) Population (million) Total gross written premiums of which: Life of which: P/C Insurance penetration rate (%) Insurance premiums per capita (DZD) 1,393 1,582 1,966 2,216 2,280 1,962 2,201 2,243 2,356 2,634 DZD--Algerian dinar. P/C--Property/casualty. Sources: Standard & Poor's, Institute of International Finance, and Algerian Finance Ministry (Direction des Assurances). Morocco: The highest insurance penetration in the Maghreb region Despite low levels of income, high urban unemployment, and high poverty in rural areas, Morocco's insurance market penetration was among the highest in the region in With GWP accounting for 3.5% of GDP, the Moroccan insurance industry is one of the largest in the Arab region and the second largest in Africa. Growth was supported by economic development, the expanding mortgage market, and growth in the travel and tourism industry. A number of French insurance and banking groups--such as AXA and Societe Generale--already have well-established operating subsidiaries in Morocco. The Credit Mutuel banking group also has a 20% stake in Morocco's leading insurer: RMA Watanya. JULY 29,

4 Table 2 Morocco: Competitive Landscape Statistics (Bil. MAD) Nominal GDP Nominal GDP (% change year-on-year) Money market rate Consumer price index (% at year-end) (1.5) Population (million) Total gross written premiums of which: Life of which: P/C Insurance penetration rate (%) Insurance premiums per capita (MAD) MAD--Moroccan dirham. P/C--Property/casualty. Sources: Standard & Poor's, Institute of International Finance, and Moroccan Ministry of Economics and Finance (Direction des assurances et de la prevoyance). Tunisia: a small sector in the process of transformation In Tunisia, the insurance industry is dominated by the nonlife insurance segment, which is estimated at 70% of the industry's GWP in Total premium income in 2012 was 1.29 billion Tunisian dinar (TND; US$ 790 million). Like its Maghreb neighbors, the insurance penetration rate and average premiums per capita also remain low at 1.8%. Distribution channels are comparatively well-developed in Tunisia, which bodes well for the development of life business. Some foreign groups hold stakes in Tunisian insurance companies, notably France's Groupama S.A. in STAR. The regulator has also implemented recent measures, including raising capital requirements, increasing mandatory insurance, and adding incentives for takaful insurance companies. Three Takaful companies are currently operating in Tunisia. Table 3 Tunisia: Competitive Landscape Statistics (Bil. TND) Nominal GDP Nominal GDP (% change year-on-year) Money market rate Consumer price index (% at year-end) Population (million) Population (million) (updated) Total gross written premiums of which: Life of which: P/C Insurance penetration rate (%) Insurance premiums per capita (TND) JULY 29,

5 Table 3 Tunisia: Competitive Landscape Statistics (cont.) TND--Tunisian dinar. P/C--Property/casualty. Sources: Standard & Poor's, Institute of International Finance, and Federation Tunisienne des Societes des Assurances. Low Penetration And Mounting Demand Will Fuel Growth Despite Economic Uncertainties We believe that growth in insurance premiums will likely outpace regional GDP growth, owing to the currently very low penetration rates. We see various factors fueling the potential expansion in the next five years: The development of infrastructures and real estate, which will accompany growth of industrial business lines; Individuals and enterprises that are unequipped in terms of insurance coverage, coupled with the need for many personal lines of business, which are still underdeveloped or untapped (like home property, savings, and accident and health); Governments' efforts to develop the sector and establish compulsory lines of business; and Increased insurance sector discipline and positive advances in regulation, which are translating into improving market surveillance, harmonized legislative frameworks, and more transparent reporting. We still believe that the three markets might confront some hurdles in coming years, such as slow economic recovery in Europe, which is the Maghreb's main trade partner, as well as political and economic uncertainties in Tunisia. We estimate that Morocco and Algeria will have moderate economic growth, as these economies are showing positive GDP growth. A Regulatory Push And Government Policy Will Drive The Sector's Transformation The Algerian government is planning large-scale infrastructural investments that will require high-value insurance coverage. This is likely to be the key driver for growth in the Algerian insurance industry in the next three years, which we estimate at about 10%-20% annually. Algeria is one of the largest oil and gas suppliers in the Maghreb region and the leading supplier to Europe. Improving economic and business conditions in the EU are likely to increase domestic oil and gas consumption. Consequently, this should accelerate demand for marine, transit, and engineering insurance products. In Morocco, the government generalization program (Contrat Programme) aims to expand insurance coverage by introducing compulsory natural catastrophe risk coverage, multiple targets for insurance penetration in property insurance and health, and specific targets for personal and commercial lines, and salaried and independent workers. The program also encompasses fiscal incentives that are likely to promote demand for long-term savings products in life business. In Tunisia, segment growth is driven by a supportive regulatory framework, as insurance classes like motor, third-party liability, professional liability, and work accident insurance are compulsory. The regulator has also implemented recent measures, including raising capital requirements, increasing mandatory insurance, and adding incentives for Takaful JULY 29,

6 insurance companies. We estimate the growth for the next three years to be at about 5%. Insurers That Standard & Poor's Rates In The Maghreb Region We rate the following entities in the Maghreb: Moroccan reinsurer Societe Centrale de Reassurance (SCR; BBB-/Stable/--) We consider SCR to be a government-related entity (GRE). According to our criteria for GREs, we align our long-term rating on SCR with the long-term local-currency rating on the Kingdom of Morocco ('BBB-/Stable/A-3' foreign- and local-currency ratings). This reflects our opinion of almost certain likelihood of timely and sufficient extraordinary government support to SCR is in the event of financial distress. Tunisia-based insurer Compagnie d'assurances et de Reassurances Tuniso-Europeenne (CARTE; B/Negative/--) The rating on CARTE is constrained by Tunisia's creditworthiness. The insurer's financial strength is vulnerable to the country's economic environment and weak banking sector. Related Research Long-Term Growth Potential For Maghreb Insurers Increases The Need For Risk Management Under Tough Economic Conditions, May 29, 2012 Additional Contact: Insurance Ratings Europe; InsuranceInteractive_Europe@standardandpoors.com JULY 29,

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