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Jun 2024

Inflation and interest rates emerge as threats

Source: Middle East Insurance Review | Sep 2023

The smooth running of any (re)insurance business requires a stable set of macroeconomic conditions. Sharp changes to any economic variable that has not been forecast and budgeted for tend to disrupt the forward plans for both the underwriting side of the business as well as the asset management side.
Morocco is currently on the horns of such a dilemma – but it is by no means alone in the MENA region in struggling to cope with an environment that is being characterised increasingly by interest-rate hikes.
Theses rates hikes are starting to pose liquidity risk to Moroccan insurers and may hold valuable lessons for insurance market players in other markets.
The burgeoning problem was first illustrated in a report published jointly by the Supervisory Authority of Insurance and Social Welfare, the Moroccan Capital Market Authority and Bank Al-Maghrib which indicated that life insurers in the kingdom could face liquidity risk because rate hikes may nudge policyholders into redeeming their savings insurance policies in search of higher yields elsewhere.
Inflation, meanwhile, is increasing the cost of living and so reducing the purchasing power of policyholders and their ability to save – forcing them to make short-term choices that may not be in their long-term interests.
In many ways Morocco is typical of a fast-developing MENA market. It saw premiums from savings insurance plans grow 12.5% in 2022 to reach MAD22.2bn ($2.23bn), according to the report.
While the net profit of the insurance industry reached MAD4.3bn in 2022, the technical result in the overall insurance market fell by MAD805.4m, with life insurance business accounting for MAD303.4m and the non-life sector MAD502m. Life insurance business posted a technical profit of MAD688m while the non-life sector reported a technical profit of MAD3.64bn.
Nothing illustrates the increasingly global nature of the financial services business more acutely than interest rates.
The reality is that any rate changes made by the Federal Reserve, the central bank of the US, are echoed very quickly by the European Central Bank and the Bank of England – and so on ‘round the planet in an interconnected series of ripples.
Money is truly global and funds will pour into whichever market offers the best yield – and Morocco really needs money to stay at home and work hard.
Climate change is threatening the kingdom, with droughts becoming more frequent. Last year Morocco’s grain harvest was slashed because of lack of rain.
According to the World Bank, Morocco’s economy grew 1.2% in 2022, down from 7.9% in 2021. The bank is forecasting growth of 3.1% this year.
Morocco economy and finance minister Nadia Fettah Alaoui said that 2022, “was the year that we decided we don’t need action plans for specific years, we need a long-term vision.”
There seems little doubt that the (re)insurance sector will have to be central to that long-term vision in order to mitigate the vagaries of a highly uncertain environment and put the nation back on the growth path once again. M 
Paul McNamara
Editorial director
Middle East Insurance Review
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