FREE ELECTRONIC LIBRARY - Online materials, documents

Pages:   || 2 | 3 |

«Long-Term Growth Potential For Maghreb Insurers Increases The Need For Risk Management Under Tough Economic Conditions Primary Credit Analysts: ...»

-- [ Page 1 ] --

May 29, 2012

Long-Term Growth Potential For

Maghreb Insurers Increases The

Need For Risk Management Under

Tough Economic Conditions

Primary Credit Analysts:

Vittorio Sangiorgio, Paris (33) 1-4420-6689; vittorio_sangiorgio@standardandpoors.com

Gwenaelle Gibert, Paris (33) 1-4420-6693; gwenaelle_gibert@standardandpoors.com

Secondary Contact:

Lotfi Elbarhdadi, Paris (33) 1-4420-6730; lotfi_elbarhdadi@standardandpoors.com

Table Of Contents Insurers That Standard & Poor's Rates In The Maghreb Market Profile: Differing Stages Of Maturity And Contrasting Financial, Operating, And Regulatory Environments Competitive Position: Low Penetration And Mounting Demand Will Provide Impetus For Growth Operating Performance: Underwriting Performance Could Weaken On Stiffening Competition Capital Adequacy: Economic Capital Needs And Estimated Capital Surpluses Differ From One Country To Another There's Room For Growth For The Maghreb's Insurers Over The Long Run Related Criteria And Research www.standardandpoors.com/ratingsdirect 970457 | 301739104 Long-Term Growth Potential For Maghreb Insurers Increases The Need For Risk Management Under Tough Economic Conditions The insurance markets in the Maghreb region--Algeria, Morocco, and Tunisia--share long-term growth potential, in Standard & Poor's Ratings Services' opinion. We think these markets are likely to advance on the back of mounting needs for life and savings products, and demand for personal lines of business, like home property and health, which remain either untapped or underdeveloped. In addition, developing infrastructure and government efforts to increase insurance penetration are likely to support premium volumes in the coming years.

Growth potential varies among the three markets, however, given their differing economic prospects, maturity, business mix, and comprehensiveness of distribution channels. We consider that challenging economic conditions, stiffening competition, and volatile investment markets accentuate the need for tightened risk management practices for those players who seek healthy long-term growth.


• Low insurance penetration and increasing demand for life, health, and personal and commercial business lines should set the stage for Maghreb insurers' premium volume growth.

• The varying degrees of maturity in the region's investment markets are shaping distinct earnings profiles for insurers.

• Financial market volatility, the current weak economies, and intensifying competition could put regional insurers' operating performance stability at risk, underscoring the need for enhanced risk management abilities.

In Algeria, where the business mix is largely oriented toward property/casualty (P/C), motor business is likely to remain the main growth catalyst, followed by industrial risks. Nascent life and protection business should also witness growth, in our opinion. Morocco shows good growth potential in most business lines, ahead of government insurance generalization programs, and despite the higher maturity of life business versus its Maghreb neighbors.

Insurers in Tunisia, meanwhile, are likely to face more limited growth prospects over the next few years owing to the currently sluggish economy, although we believe insurance premium growth should outpace economic growth over the long term.

We view Maghreb insurers' underwriting earning profiles as still highly concentrated on motor and to a lesser extent on industrial lines. Although the contribution of life business to operating earnings is likely to remain subdued compared with that of P/C lines, we expect it to increase as life gains growth momentum, particularly in Morocco.

Maghreb insurers' investment earnings are likely to trend downward in the coming years, in our view, due to increased financial market volatility and lower interest rates. Investment earnings have positively complemented technical results, historically, particularly for Moroccan and Tunisian insurers. Investment results typically represent

–  –  –

the largest share of Moroccan insurers' earnings, given the country's more mature investment markets, especially in equities. By contrast, in Algeria, technical earnings are the main earnings contributor, as players mostly invest in treasury bonds and notes.

We believe that insurers' capital positions and capital needs differ from one market to another, and largely reflect differing investment profiles. Still, under Standard & Poor's risk-based framework, asset-related risks, and particularly market risk, are likely to represent the largest capital consumers for insurers in the three Maghreb markets. We believe that Moroccan insurers are, on average, more exposed to market risk, given their high holdings of local equities. In Tunisia, exposure to equities is high although lower than in Morocco. Credit risk is a strong capital consumer in all three markets, given insurers' high shares of local bond holdings.

Our recent downgrade of Tunisia (Republic of Tunisia, BB/Stable/B) leads to increased credit risk charges in our risk-adjusted capital adequacy framework, which in turn decreases insurers' capital buffers in general in Tunisia.

(See "Tunisia Foreign And Local Currency Ratings Lowered To 'BB/B' On Weaker Economic Indicators; Outlook Stable," published May 25, 2012, on RatingsDirect on the Global Credit Portal.) Capital charges for Algerian insurers mostly stem from property assets and credit and counterparty risk. Exposure to market risk is generally low given these insurers' limited equity holdings. In turn, they likely have comfortable capital buffers on average under our risk-adjusted framework.

We believe that insurers in Algeria, Morocco, and Tunisia generally still have work to do to bring their risk management practices to levels commensurate with their growth prospects, as they continue their efforts, alongside regulators, to strengthen the discipline of the insurance sector. In our opinion, volatile investment markets, particularly in Tunisia and Morocco, and difficult economic prospects could complicate insurers' progress. Insurers will likely have to move quickly to meet mounting demand as they adapt their product offerings, enhance transparency toward policyholders and other stakeholders, and implement reinforced risk management practices.

Maghreb insurers' efforts to improve their risk management practices are likely to gain further momentum, in our opinion, as volumes grow, and products offered and risks assumed become more diverse. In addition, risk management practices are likely to increasingly come under the spotlight, because the Algerian, Moroccan, and Tunisian insurance industries are contemplating the adoption of risk-adjusted solvency frameworks in the coming years, according to our understanding. A move along these lines is likely to lead to healthier growth, and influence insurers' investment strategies while helping to improve their operating performances.

Insurers That Standard & Poor's Rates In The Maghreb

Our coverage of the insurance sector in the Maghreb includes:

• Moroccan reinsurer Societe Centrale de Reassurance (SCR; BBB/Stable/--). SCR is state-backed and we consider it to be a government-related entity (GRE). According to our criteria for GREs, we equalize our long-term rating on SCR with the long-term local currency rating on the Kingdom of Morocco (foreign currency BBB-/Stable/A-3, local currency BBB/Stable/A-2), reflecting our opinion that the likelihood of timely and sufficient extraordinary government support to SCR is "almost certain" in the event of financial distress.

• Tunisia-based insurer Compagnie d'Assurances et de Reassurances Tuniso-Europeenne (CARTE; BB/Stable/--).

We recently lowered the long-term ratings on CARTE following the downgrade of Tunisia, owing to the

–  –  –

concentration of CARTE's businesses and investments on Tunisia (see "Tunisia Foreign And Local Currency Ratings Lowered To 'BB/B' On Weaker Economic Indicators; Outlook Stable").

Market Profile: Differing Stages Of Maturity And Contrasting Financial, Operating, And Regulatory Environments Motor remains the largest business line in the Maghreb and should continue to dominate as the number of registered vehicles rises. The region currently averages between seven and 15 vehicles for every 100 inhabitants (source: World Bank). Furthermore, only third-party liability related to car insurance is compulsory. Industrial lines are the second largest business lines, particularly in Algeria and Tunisia. Life insurance has been a growth catalyst, on the back of expanding needs for savings and health products, and the introduction of bancassurance, particularly in Morocco (see chart 1).

Chart 1 The three insurance markets present disparities in terms of concentration. Morocco and Algeria are the most concentrated (see chart 2).

–  –  –

Chart 2 Algeria: 16 insurers and one reinsurer Privately owned and mutual insurers are progressively gaining market share, representing 33% of GWP and 94% of new business in 2010. Foreign players continue to show interest in the Algerian market. For instance, France-based AXA (AA-/Negative/--), MACIF (not rated), and BNP Paribas (AA-/Negative/A-1) have interests and partnerships in local insurers.

Distribution channels are mostly geared toward direct sales and tied agents, while broker distribution remains limited to 5% of gross premiums, owing to government restrictions. We view distribution capabilities as less mature than in neighboring countries, with a lower density of agents per capita. The increase of privately owned players, mostly distributing via agency networks, will boost the number of agents in the upcoming years, in our view. The three dominant state-owned insurers and major state-owned banks forged the first bancassurance deals in 2008, rapidly followed by privately-owned insurers.

Algerian regulators are introducing a new accounting framework for insurers, while enhancing solvency requirements, and separating life and non-life activities, which should foster increasing transparency and better risk management.

However, the market features one of the highest levels of state intervention in the region. State owned insurers still dominate. Furthermore, a new law in 2010 increased compulsory legal cessions to state-owned reinsurer Compagnie

–  –  –

Centrale de Reassurance (CCR, not rated) to 50% of premiums from 5%-10% previously.

Morocco: 16 insurers and one reinsurer The market has witnessed major consolidation since 2006, as a result of reinforced supervision. It is also concentrated, with the five biggest companies generating more than 70% of total premiums. A number of French insurance and banking groups already have well established operating subsidiaries in Morocco; such as AXA and Societe Generale (A/Stable/A-1). The Credit Mutuel banking group also has a 20% stake in Morocco's leading insurer RMA Watanya.

Based on intermediaries per inhabitant, excluding bancassurance, Morocco's number of agents and brokers remains low, at 40 per one million inhabitants, compared with more than 80 per one million inhabitants in Tunisia), and is highly concentrated around the main cities of Casablanca and Rabat. In light of the market's high growth prospects, we expect the number of agents to climb. The already well-developed bancassurance channel should be able to favor development of life products.

The Moroccan government is showing interest in developing the insurance sector, as evidenced by the introduction in 2011 of its "contrat programme" initiative. The program introduces 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.

Tunisia: 18 insurers and one reinsurer The market is more fragmented than in Algeria and Morocco, with the top five insurers making up around 55% of market volumes. Some foreign groups currently hold stakes in Tunisian insurance companies, notably France's Groupama S.A. (BBB-/Watch Neg/--) in STAR and Italy-based Assicurazioni Generali SpA (A/Stable/--) in Maghrebia Vie.

Tunisia has the most mature distribution capabilities, in our view, with more than 80 intermediaries per one million inhabitants (excluding bancassurance), the highest number in the region. Moreover, the growing number of bancassurance channels supports the development of life business.

The regulator has also implemented recent measures, including raising capital requirements, increasing mandatory insurance, and adding incentives for takaful insurance companies (see "Glossary Of Islamic Finance Terms," published Jan. 7, 2008). We understand that Tunisian authorities intend to roll out fresh initiatives, including further increases in mandatory coverage and the harmonization of local accounting and solvency standards.

Competitive Position: Low Penetration And Mounting Demand Will Provide Impetus For Growth We believe that advances 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, following the growth in recent

years (see chart 3):

• 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.

Still, we believe that the three markets might confront some hurdles in coming years, such as:

• Challenging economic conditions, particularly in Tunisia;

• Increasing competition among players;

Pages:   || 2 | 3 |

Similar works:

«March 2015 Rise and Fall of the Chief Digital Officer In this digital age commercial success of businesses, whether they are services or product oriented or a combination of the both, is determined by how well information is used. This is not only true for use within the company but also for how well it is used and shared across the complete “supply chain”, being suppliers, employees across all functions, sales channels and clients. We believe the Chief Digital Officer (CDO), a relative new...»

«Evidence on the use of unverifiable estimates in required goodwill impairment* Karthik Ramanna Harvard Business School kramanna@hbs.edu and Ross L. Watts MIT Sloan School of Management rwatts@mit.edu First draft: January 15, 2007 This draft: January 31, 2011 Abstract SFAS 142 requires managers to estimate the current fair value of goodwill to determine goodwill write-offs. In promulgating the standard, the FASB predicted managers will, on average, use the fair value estimates to convey private...»

«AG435 Accounting Dissertation DEPARTMENT OF ACCOUNTING AND FINANCE Accounting Dissertation CLASS CODE: AG435 2014/2015 SEMESTERS 1 and 2 Dissertation Due Date: April 1st 2015 NAME OF CO-ORDINATOR: Margaret Stewart E-MAIL: margaret.stewart@strath.ac.uk Room Curran 402 This outline is for the Accounting Dissertation 30 credits and the Research Methodology and Methods 10 credits, together these classes make up AG435 Accounting Dissertation. There is separate assessed coursework for the methodology...»

«MOSL draft business plan presentation Key issues and questions raised 16 September 2015, St Ermin’s Hotel, London Purpose of meeting: for MOSL to present its draft business plan and give participants an opportunity to ask any final questions or seek any final clarifications before submitting their feedback to the plan on 18 September. Attendees Bournemouth Water Bob Taylor, CEO Castle Water John Reynolds, CEO Severn Trent Ian Dearnley, General Manager Business Development Thames Water Colm...»

«Continuing Professional Development and Farm Business Performance Sharon Byles, Phil Le Grice, Tahir Rehman and Peter Dorward Paper prepared for presentation at the 13th International Farm Management Congress, Wageningen, The Netherlands, July 7-12, 2002 Copyright 2002 by Sharon Byles and Phil Le Grice. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies.CONTINUING...»

«BONDHOLDER-STOCKHOLDER CONFLICT: CONTRACTUAL COVENANTS VS COURT-MEDIATED EX-POST SETTLING-UP P.V. VISWANATH Lubin School of Business Pace University 861 Bedford Road Pleasantville, NY 10570 Tel: (212) 346-1817 Fax: (212) 346-1573 E-mail: pviswanath@pace.edu Web: http://webpage.pace.edu/pviswanath and WAYNE EASTMAN Graduate School of Management Rutgers University 92 New Street Newark, NJ 07102 Abstract: Bondholders have failed to respond to corporate restructurings by demanding more protective...»

«INNOVATE. EXECUTE. GROW. 20 14 A N N U A L R E P O R T YEARINREVIEW.STANLEYBLACKANDDECKER.COM Stanley Black & Decker is advancing global stewardship principles across our entire value chain. In 2014 we publicly shared our commitment to be economically, environmentally and socially responsible in everything that we do by unveiling ECOSMART— our company’s name for sustainability. ECOSMART emphasizes our commitment to a sustainable future and aligns with our Stanley Fulfillment System,...»

«Agreed Report of Board of Management meeting Tuesday, 24 May 2016 Attendance Mr. Cummins, Ms. Foley, Ms. Shannon, Mr. MacGonagle and Mr.Clancy. Apologies were received from Sr. Helen, Mr. Quigley and Ms.Huelswitt. As Secretary to the Board, Mr. O’ Shea also attended. In the absence of Sr. Helen, Mr. Mac Gonagle was unanimously appointed to chair the meeting. Minutes The minutes of the last two meetings (13 April and 3 May 2016) were adopted following the proposal of Ms. Shannon, seconded by...»

«9th GEM&L International Workshop on Management & Language Helsinki, 10-12 June 2015 Language in Global Management and Business: Theoretical, Methodological and Empirical Advances The business of English, global panacea or pandemic? Myths and realities of ‘Global' English Robert Phillipson Language has always been the handmaiden of empire. Antonio de Nebrija, 14931 Contrary to the wording affirmed in the Bologna Declaration, the reform of higher education serves the purpose of replacing the...»

«New York State Department of Financial Services Community Banking Report Superintendent Benjamin M. Lawsky February 2013 Table of Contents I. Executive Summary II. Significance of Community Banks to the New York State Economy III. State of Community Banks in New York A. Number of Community Banks B. Assets of Community Banks C. Deposit Share of Community Banks D. Performance of Community Banks IV. Continuing Challenges for Community Banks in New York A. Rising Interest Rates B. New Banking...»

«DRAFT Stefan Kawalec and Krzysztof Kluza Challenges of Financial System Development in Transition Economies Draft: July 27, 2000 Paper for the session “Banking and Capital Markets: The Unfulfilled Promise in Europe and Central Asia” Program of Seminars “Making the Global Economy Work for Everyone” held on the occasion of the Annual Meetings of the International Monetary Fund and the World Bank Prague, 22-25 September, 2000 Stefan Kawalec and Krzysztof Kluza Challenges of Financial...»

«Li, China Leadership Monitor, No. 39 (addition) China’s Top Future Leaders to Watch: Biographical Sketches of Possible Members of the Post-2012 Politburo (Part 4) Cheng Li The composition of the new Politburo, including generational attributes and individual idiosyncratic characteristics, group dynamics, and the factional balance of power, will have profound implications for China’s economic priorities, social stability, political trajectory, and foreign relations. To a great extent, these...»

<<  HOME   |    CONTACTS
2017 www.thesis.dislib.info - Online materials, documents

Materials of this site are available for review, all rights belong to their respective owners.
If you do not agree with the fact that your material is placed on this site, please, email us, we will within 1-2 business days delete him.