The fall in the prices of companies listed on the Casablanca Stock Exchange, combined with the decrease in dividends to be distributed for the 2019 financial year are expected to weigh heavily on the financial results of insurers this year.
The insurance industry is one of the biggest financial investors, especially in the equity market. In 2019, insurers’ equity assets totalled MAD80bn ($8.3bn), or 48.7% of their investments, reported Le Boursier quoting analysts. The sector should therefore be heavily impacted in 2020 due to the underperformance of the stock market.
Due to the spread of COVID-19, stock prices have plunged significantly by 20% between 28 February, the last listing session before the first confirmed case of coronavirus in Morocco, and 31 May. With the fall in share prices, the valuations of insurers’ equity portfolios will deteriorate.
In addition, given the current crisis, several listed companies have suspended dividend distribution, which will reduce the return on their investment portfolios and affect the attractiveness of the financial products of insurers.
Provisions
However, the impact from these factors will be slightly mitigated by rules of the Supervisory Authority of Insurance and Social Welfare (ACAPS) on provisioning for impairment of investment values. For example, the threshold for making provisions for assets with unrealised losses has been increased to 30% from 25%. However, insurers will also have to make provisions for unpaid receivables and premiums.
Similarly, the reference value for listed stocks was set as the price corresponding to the weighted average of the previous three months. This period has been extended to six months. The benefit of the change is that when insurers close their accounts at the end of June, they will be able to take advantage of the early months of the year when the market was not affected by the crisis. This will make it possible to lower the provisions required.
Other investment products, especially fixed income products, should not be affected this year. However, this could not compensate for the negative impact of equity investments, but it will help stabilise the situation.
Third consecutive monthly fall in premiums in April
The financial performance of the insurance industry in the past few months has been affected by difficulties caused by the COVID-19 pandemic. According to data published by the ACAPS, total market premiums fell by 12.1% to MAD3.55bn in April 2020 compared to the corresponding month in 2019, the third monthly y-o-y fall in premiums this year.
Premiums generated by the insurance industry in Morocco reached MAD3.08bn in March 2020, down 13% compared to March 2019. Premiums in February fell by 8.8% to MAD3.5bn.
The non-life branch recorded premiums of MAD2.2bn in April, down by 6.8% compared to April 2019, largely due to the drop of 22.6% in the automotive sub-branch to MAD932m. Life premiums decreased by 19.7% y-o-y to MAD1.3bn in April, due to a fall of 25.1% in savings products to MAD962m and a plunge of 27% in life protection insurance to MAD223m. M
MAD1 = $0.10