THE INSURANCE SECTOR IN TUNISIA: Potential Opportunities

UNCLAS TUNIS 000216 SIPDIS STATE FOR NEA/MAG (HAYES),EEB/CBA (Winstead) USDOC FOR ITA/MAC/ONE (MASON),ADVOCACY CTR (TABINE) CASABLANCA FOR FCS (ORTIZ) E.O. 12958: N/A TAGS: ECON EIND ETRD EFIN TS SUBJECT: THE INSURANCE SECTOR IN TUNISIA: Potential Opportunities for US Companies -------------- Summary -------------- ¶1. This cable provides a comprehensive overview of the insurance sector in Tunisia. Law No. 2008-8, passed by the Tunisian Parliament on February 11, 2008, amended the insurance code and opened the sector to foreign competition. This provides opportunities for US companies to consider investing in the formerly closed Tunisian insurance sector. Tunisia will be hosting a summit for insurance companies in the Middle East/North African region on April 28-30, 2009. End Summary. -------------- A Sector in the Process of Transformation -------------- ¶2. The insurance sector in Tunisia suffers from several shortcomings: low penetration in the national economy, low density, a modest role in mobilizing savings, and a persistent structural deficit for some segments. These weaknesses need to be overcome in the near term to enable the sector to play a full role in an economy where markets have to be opened to foreign competition in accordance with the commitments made under the WTO and the Tunisia-European Union Association Agreement. The reforms undertaken over the last ten years are focused on improving the financial situation of insurance companies, updating the legal and regulatory framework, development of under-exploited segments (i.e. life insurance, agriculture),reform of major insurance schemes, upgrading of insurance companies, improving the environment by introducing new regulations and the gradual opening of the sector to competition. -------------- - Macroeconomic Position of the Insurance Sector -------------- - ¶3. The two indicators commonly used to assess the macroeconomic position of the sector are the penetration rate and the density of insurance. The penetration rate is the share of the gross domestic product (GDP) allocated to the purchase of insurance products. According to statistics of the Tunisian Federation of the Insurance Companies (FTUSA),the penetration rate grew from 1.95 percent in 2006 to 1.96 percent in 2007. This slight increase highlights the sector's low performance, which has been 1.9 percent over the last three years. ¶4. Insurance density is defined as the gross premium income in percentage of the population. This indicator calculates the amount of money spent on insurance products per inhabitant and per year. According to FTUSA statistics, in 2007, the insurance production growth rate was 9.6 percent. This was higher than the total population growth rate of 1.18 percent, ergo an increase in the insurance density. Insurance density increased from 79.1 Tunisian Dinar (TD) (US$60) per capita in 2006 to 85.7TD (US$67) in 2007, mainly due to the increase in auto insurance premiums. Note: The latest official statistics used throughout this report are for 2007. The exchange rate used is US$1/TD1.32 for 2006 and US$1/TD1.28 for ¶2007. End Note. ¶5. Tunisia's insurance density remains low when compared to the world average level of US$554.8, or to developed countries such as France (US$4,075.4) and the United States (US$3,923.7) or to emerging countries such as Mexico (US$139),Brazil (US$ 161),Turkey (US$89.2) and Lebanon (US$181.5). -------------- Market Structure -------------- ¶6. In Tunisia the sector is composed of corporations, mutual insurance companies, and agents. There are currently 22 insurance companies including: - 13 multi-line companies; - 5 specialized companies: two in life insurance, ONE in export insurance, ONE in credit insurance, and ONE in reinsurance; and - 4 off-shore companies. The 18 onshore companies are comprised of 15 corporations, two mutual insurance companies and ONE agriculture mutual fund. Private companies dominate the market and held a total market share of 56.5 percent in 2007, while state-owned companies and mutual insurance companies held 24.8 percent and 18.7 percent respectively. According to FTUSA, Tunisia's insurance premiums totaled 872.1 Million TD (US$681 million) in 2007; a growth rate of 9.6 percent compared to 2006 (795.8 Million TD or US$602 million). ¶7. The role of insurance agents is extremely important because they participate actively in the development of the insurance companies' strategies and the marketing of their products. In Tunisia, there are currently: - 643 insurance agents; - 57 brokers; - 31 life insurance agents; - 886 insurance experts and damage commissioners; and - 8 actuary experts. -------------- -------------- Regulatory Institutions and Supporting Structures -------------- -------------- ¶8. Several institutions are engaged in the insurance sector in Tunisia as regulatory entities, but the most important institution is the General Insurance Committee (GIC),which is a central administration within the Ministry of Finance. The GIC aims to protect the policy-holders' rights and safeguard the capacity of insurance and reinsurance companies to meet their commitments. It intervenes in: - The control of insurance and reinsurance companies and the sector's related professions; - The monitoring of the sector's activity; - The study of all legal and technical issues related to the insurance and reinsurance operations and preparation of related regulations and law texts; and - The study of all matters related to the development and the organization of the sector. ¶9. Besides the General Insurance Committee there are: - The Tunisian Federation of Insurance Companies (Federation Tunisienne des Societes d'Assurance),which is in charge of the study and the defense of the economic and social interests of the profession. - The Central Office of Rates (Bureau Central des Tarifications), which fixes the insurance premium for coverage of civil liability related to the use of automobiles. - The Unified Office for Tunisian Automobile (Bureau Unifi Automobile Tunisien),which is an association of insurance companies authorized to practice civil liability insurance related to automobile accidents. -------------- Structure of the Insurance Portfolio -------------- ¶10. In 2007, the non-life insurance segment represented 89.14 percent of Tunisian insurance companies' turnover. Life insurance represents the remaining 10.86 percent, far below the world average of 60 percent. The structure of the insurance market has not undergone major changes although it is seeing healthy growth rates across the board. The automobile segment continues to dominate the sector with a 44.71 percent share of the total turnover in 2007, a growth of 7.93 percent over 2006. The share of premiums for compulsory insurance (civil liability) as a percentage of auto premiums is going down gradually, from an average of 70 percent in the 1990s to 55 percent in 2007. This could be explained by the commercial actions carried out by the insurance companies to encourage their customers to subscribe to optional guarantees for better coverage (theft, fire, broken windows, assistance, etc.). ¶11. The HEALTH segment represented 14.68 percent of the portfolio in 2007, a growth rate of 7.1 percent compared to 2006. In 2006 and 2007 this segment grew at a lower rate than the whole sector. The various and technical risks segment registered a 12.76 percent share in 2007, a growth rate of 17 percent compared to 2006. The life insurance segment's market share was 10.86 percent in 2007, producing the highest growth rate in the sector, 21.45 percent compared to 2006. This high growth resulted from the incentives and tax relief granted to underwriters and beneficiaries of life insurance contracts and to the delivery of such contracts by banks and by the post office. -------------- Market Share -------------- ¶12. There are three types of insurance companies: private, public and mutual insurance companies. According to FTUSA stats of 2007, the private companies dominate the market with a 56.3 percent market share. The public sector, which is mainly represented by STAR, holds a 26.8 percent market share, and the mutual insurance companies hold a 6.9 percent market share. In terms of growth rate, the mutual insurance companies' market share increased by 19.1 percent between 2006 and 2007. ¶13. 2007 statistics show that market shares of the main players were as follows: - STAR (public): 24.2 percent - COMAR (private): 12.1 percent - MAGHREBIA (private): 9.1 percent - AMI (mutual): 8.4 percent - ASTREE (private): 8.0 percent - CARTE (private): 7.8 percent - GAT (private): 7.3 percent - MAE (mutual): 6.0 percent ¶14. STAR dominates the non-life insurance segment. It leads the auto insurance segment with a market share of 23.8 percent followed by AMI (15.2 percent),and COMAR (14.5 percent). STAR also largely dominates the HEALTH insurance segment with a 42.8 percent market share followed by ASTREE (9.7 percent),GAT (9 percent),and COMAR (7.8 percent). STAR (32.6 percent) holds the largest market share in the transport insurance segment followed by ASTREE (15.5 percent). The two specialized companies, COTUNACE and ASSURCREDIT together capture 87.3 percent of the credit insurance segment with COTUNACE capturing a 68.7 percent market share. CTAMA (mutual insurance) dominates the hail and livestock mortality insurance segment with a 61.5 percent market share followed by COMAR (13.9 percent). Maghrebia leads the life insurance segment with a 17.2 percent market share. Hayett and Amina, two specialized companies in the life insurance segment, hold market shares of 14.3 percent and 4.7 percent, respectively. -------------- 2007 Performance Overview -------------- ¶15. The insurance sector's total turnover for 2007 reached 872 million TD (US$681.25 million) registering a 9.6 percent increase over 2006. The non-life insurance segment continued to represent 89.14 percent of the total market in 2007. However, life insurance, with a 10.86 percent market share, posted the highest growth rate (21.45 percent over 2006). The most important event that occurred in 2007 was the opening of 35 percent of the stock of the most important state owned insurer, STAR (Societe Tunisienne d'Assurances et de Reassurances) to private investors. Ultimately in July 2008, the French mutual insurer Groupama won the bid and paid around US$100 million (70 million Euros) for its stake. -------------- Opportunities -------------- ¶16. Prior to February 2008, the insurance sector was under heavy protection that prevented foreign insurance companies from competing in the Tunisian market unless the majority of the capital was held by Tunisian partners. Law No. 2008-8, adopted on February 13, 2008 amended the Insurance Code and states in article 50A that foreign insurance companies no longer require a "Carte Commercante." This was a special authorization given by the authorities to foreign companies allowing them to operate in the Tunisian insurance sector. Foreign equity share restrictions have been eliminated and any foreign company can establish a commercial presence by setting up a subsidiary, forming a new company, or by acquiring an already established insurance supplier. However to be registered in Tunisia, the foreign insurer has to request approval from the General Insurance Committee. Once approved, foreign insurance suppliers can compete for insurance lines that are required of persons and businesses resident in the country and will be treated no less favorably than domestic service suppliers with respect to capital, solvency, reserve, tax, and other financial requirements. ¶17. With this liberalization, Tunisia meets its commitments under the WTO and European Union Association agreement, and opens up a previously protected sector. This new context offers good opportunities for US companies looking to invest in Tunisia, particularly in the non-life insurance segment. Potential investors should always conduct their own due diligence before finalizing any business ventures in Tunisia. Relevant information on the investment climate in Tunisia can be found in the 2009 Country Commercial Guide located at http://www.buyusainfo.net/docs/x_8873541.pdf. Potential investors might also want to participate in the insurance summit for North Arica and the Middle East that Tunisia will be hosting on April 28-30. -------------- Risks Related to the Tunisian Market -------------- ¶18. As is the case in the majority of Muslim countries in the Middle East and North Africa (MENA) region, the life insurance segment is significantly underdeveloped because of its non-compliance to Sharia, or Islamic law. In fact, the purchase of life insurance products is strongly influenced by perceptions of whether or not the products are compliant with Sharia, and life insurance is perceived to have prohibited elements of uncertainty, gambling and interest income. ¶19. In response to this societal desire to be in compliance with Sharia, Takaful - a form of insurance that complies with the principles of Sharia - has emerged as an alternative to conventional insurance. Many foreign companies operating or intending to operate in the MENA region are seriously considering offering this type of insurance. The other factor that foreign insurance companies have to consider is the limited awareness of life and disability insurance and their benefits within the country, which is partly driven by cultural factors, such as the reliance on the extended family network in case of death or disability. GODEC