MOROCCO'S INSURANCE SECTOR

UNCLAS RABAT 001118 SIPDIS SENSITIVE SIPDIS DEPT PASS USTR FOR DOUG BELL E.O. 12958: N/A TAGS: EFIN ECON ETRD MA SUBJECT: MOROCCO'S INSURANCE SECTOR Sensitive but Unclassified. Not for internet distribution. ¶1. (SBU) Summary: Morocco's insurance market, the largest in the Middle East and North Africa, and the second largest on the African continent after South Africa, continues to experience solid growth, as companies introduce a range of new products in the areas of life, credit and medical insurance. Ministry of Finance officials argue that the appropriate regulatory framework is in place that will allow the sector to flourish, and that it is now up to individual companies to take advantage of it. Pointing to the ability of European insurance giants (AXA, Societe General, and Zurich) to enter the market, they stress Morocco's openness to American investment in the sector in accord with provisions of the bilateral free trade agreement. They concede, however, that it is easier for new companies to enter the market by purchasing an existing company than by seeking to enter in their own right. The consultative committee that vets all such new entrants, Finance Ministry Director for Insurance Thami El Barki told us recently, often takes a "conservative stance," so that only applications which bring a "new product" to the sector are likely to be approved. End Summary. ¶2. (SBU) Given the interest expressed by some U.S. companies in looking at the Moroccan insurance market, we met recently with industry regulators and others to review developments. The Finance Ministry's most recent statistics highlight continued steady growth in the sector, which is already a leader regionally. Premiums rose nearly 12 percent from 2005 to 2006, with life insurance products leading the way with 26 percent growth. Officials see room for further expansion, given that insurance currently constitutes only 2.8 percent of GDP, far short of European levels of 10 to 11 percent (though Morocco's level does exceed that of other countries in the region). Companies are also entering new areas, as highlighted by the announcement this week by three companies that they will begin to market medical insurance products that will cover the portion of expenses not covered by the state's obligatory national medical insurance. ¶3. (SBU) Morocco's chief insurance regulator, Thami El Barki, who was lead negotiator for the insurance provisions of the U.S.-Morocco FTA, and who has overseen the sector's transformation through 15 years in his current post, told us on July 5 that American companies enjoy the same privileges in the Moroccan market as do their Moroccan counterparts. He added that they can establish representative offices rather than a full-fledged Morocco based company, while they can also own a majority share in an insurance company's capital (up to 51 percent). He conceded, however, that procedures that apply to all insurance companies could limit the ability of American companies to enter the market. The sectoral consultative committee that must approve all requests for new entrants tends to adopt a "conservative stance," especially given that 16 of its 24 members represent existing insurance companies. (Only 4 government representatives sit on the panel, the remaining 4 come from intermediary companies.) ¶4. (SBU) El Barki argued that new entrants do "have a chance to pass" if they come forward with a new product that is not currently available in the market. "The committee is not totally closed," he said, characterizing it more as a mechanism that permits "coordination" between state and private sector experts. He admitted, however, that if a company came forward simply with the intention of offering "classic products" that are already available, its chances of obtaining approval would be slim. ¶5. (SBU) El Barki emphasized that the committee plays no role when an insurance company enters the market by purchasing an existing insurer, as this does not involve the granting of a new agreement. Instead it is the Ministry of Finance that reviews the transaction. Thus, when Societe Generale entered Morocco, it did so by purchasing two existing Moroccan insurance companies, reaching an agreement with their earlier owners. (Most insurance companies are quoted on the Casablanca Stock Exchange, but typically with a free float of 20 percent or less.) He contrasted the seriousness of European interest with that of American companies, which have occasionally prospected in Morocco, but never followed through with an actual investment. ¶6. (SBU) El Barki said that the reform of the sector's regulatory framework is basically complete, and that it offers insurance companies the opportunity to compete and proper. Most of Morocco's 17 insurance companies are doing well, he said, except for two that have experienced difficulty. Companies benefit from freedom to set their premium levels, to freely accept investment, to manage their enterprise as they wish, and to reinsure their liabilities abroad (with the caveat that the Ministry maintains a "blacklist" of reinsurers that are banned for "quality reasons"). In El Barki's view, the key remaining weakness of the sector is that of the narrowness of Morocco's stock market, where companies place their assets (only 5 percent of insurance company assets can be invested abroad). This makes it difficult, in his view, for them to diversify effectively while achieving the yields they require to meet their obligations. (Note: We understand from industry contacts that an added constraint is the requirement that such investments be certified by the Ministry on an annual basis, something that limits long-term investments. End Note.) ¶7. (U) An additional weakness of the sector is the continuing backlog of outstanding claims. "The Economist" newspaper provided a "hit-list" of the industry's worst offenders in early July, noting that Zurich insurance company has the best record and Es-Saada the worst, with nearly 8,000 unpaid claims. Overall, however, the sector has brought down the backlog over the last 18 months: unexecuted judgments now stand at 30,000 (half predating 2007),whereas they totalled 50,000 at the end of 2005. ¶8. (SBU) Comment: Concrete evidence that El Barki's optimism for the sector is justified comes from the strong growth statistics that have marked insurance in Morocco over the past four years. Opportunities clearly exist for American companies, particularly given the low penetration for products like life insurance and credit insurance, and the increasing availability of long-term credits for housing and property. El Bariki notes that historically growth in Morocco has centered on obligatory insurance products like automobile insurance and workman's compensation insurance. The burgeoning property market offers the potential for significantly increased insurance sales, as lenders seek to guarantee their exposure in part through insurance, both on the policyholder and on the underlying property. End Comment. ****************************************** Visit Embassy Rabat's Classified Website; http://www.state.sgov.gov/p/nea/rabat ****************************************** RILEY