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Cablegate: Morocco's Insurance Sector


DE RUEHRB #1118/01 1901340
R 091340Z JUL 07





E.O. 12958: N/A

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.

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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.

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