IThe resilience of the Moroccan insurance sector no longer needs to be proven. In 2022, despite the inflationary context, the achieved revenue reached 54.5 billion MAD, an increase of 8.5% compared to 2021. However, the sector was affected by the unfavorable conditions in the financial market. Its unrealized capital gains thus fell by 53.8% and its financial balance fell by 23.8%. Despite these underperformances on investments, the insurance sector had a positive result in 2022 of 4 billion dirhams (+1.8%), that is, a return on equity (ROE) of 9.4%, a decrease of 10 basis points compared to the financial year 2021.
Furthermore, the fall in unrealized capital gains directly affected the sector’s solvency margin, which fell to 312.7% against 370.4% a year earlier. This margin, calculated under the current supervisory regime, remains above the regulatory threshold, but at this stage covers only the insurance risk. “We should be proud of what we have achieved together, but unfortunately resilience has limits and crises leave scars. We must remain vigilant and work together not to weaken our fundamentals and weaken our technical results”, clarifies Mohamed Hassan Bensalah, president of the Moroccan Insurance Federation, for whom the sector is still a “price market”.
A logic that absolutely must be reversed. “With each renewal, loss-making or barely balanced companies find customers at lower prices. This situation cannot last any longer”, laments the president of the FMA (ex-FMSAR). In addition to financial results, the sector is engaged in several restructuring projects, some of which have been slow to see the light of day. The first major regulatory challenge is the famous risk-based solvency project, a close cousin of Solvency II in Europe.
SBR: Adoption from 2024
The launch of convergence studies for the transition to risk-based solvency has put the sector to the test in recent years. And if the SBR repository is scary, it is because it will have certain impacts on the sector. This will result in more capital requirements, a tightening of solvency margins and an acceleration of mergers and acquisitions in the sector. But this reform will improve the transparency of the stock market and the quality of information from companies. Based on 3 pillars, the reform allows taking into account all the risks that insurance companies are exposed to in the calculation of the solvency margin, which should significantly reduce the margin profits of Moroccan companies.
THowever, the latter are comfortable enough to absorb these shocks, as evidenced by the various stress tests that have been carried out. “Since the launch of this project in 2017, we have seen the strong support and continuous mobilization of the sector. Today, to our great satisfaction, the implementation of pillar II, which is very resource-intensive, is almost complete. Regarding pillars I and III of this project, the discussions with the profession are at an advanced stage. We are in the stabilization phase of the calibration of the model, and we expect the second half of this year to enter the circuit for the approval of the legal texts. Everything therefore gives us to believe that we will be ready by 2024”, explains the acting chairman of the Insurance and Social Welfare Authority, Othman Khalil El Alamy.
IFRS 17: Companies catch up
Alongside SBR, insurance companies must all switch to IFRS from 2025. An agenda where some companies are leading the way, especially listed insurance companies. By imposing this standard on them, the Moroccan regulatory authority wants to improve the quality of the financial information disseminated by operators in this systemic sector. A bit like it was the case a few years ago for the banks.
This project, which runs until 2025, aims to introduce transparency rules in financial communications. In purely accounting terms, IFRS 17 aims to correct the mismatch between the valuation of assets and liabilities present under IFRS 4, in particular by proposing an economic valuation of actuarial provisions, thus ensuring better alignment with the valuation of assets. The new standard is based on fundamentals close to the Solvency 2 Directive in Europe (future SBR in Morocco), such as a valuation of insurance liabilities based on a forward-looking fair value cash flow approach. But the standard goes beyond accounting aspects.
Revision of Book IV of the Insurance Codes
Today, there is general agreement that the current insurance framework has become outdated and serves neither the profession nor the insured. During the last meeting of FNACAM, Othman Khalil El Alamy announced that a first version of the plan to revise Book IV of the Insurance Code is ready. “The revision of Book 4 of ACAPS is certainly a topic that has created a lot of debate, but it must first of all be remembered that it provides solutions that will benefit both intermediaries and companies”, explained Bensalah on his side. The outline of this first draft was presented to the regulatory authority’s partners, namely FMA and FNACAM. “We intend to put it into circulation before the end of the year, once the discussions are over,” El Alamy said.
“The project we propose intends to overcome the current limitations that hinder the development of the sector, to release the energy, both from insurance companies and intermediaries, to serve policyholders and financial inclusion”, said the authority’s president. Remember that this project aims to modernize the reference framework for the distribution of insurance products, taking into account developments in the sector. And also establishing frameworks for online sales of insurance products. Finally, the emergence of microinsurance is an important lever for extending coverage to a larger number of people.
By targeting low-income populations, microinsurance offers essential financial protection against the vagaries of life. Moroccan insurance companies have thus developed products adapted to these specific market segments, thereby promoting financial inclusion and the country’s economic development. “If microinsurance has taken off, we are very little present in terms of the affinity and the development of certain guarantees that cannot be provided by the traditional networks”, Bensalah emphasized on this subject.
