Morocco must rethink its strategy for the reinsurance market by protecting its local players or risk their gradual disappearance, Mr Chakib Abouzaid, the secretary general of the General Arab Insurance Federation (GAIF) has said.
In an interview with Medias24 during a working visit to Morocco, Mr Abouzaid spoke of the collapse of several Arab reinsurers caused by the opening of reinsurance markets in the region to foreign competition. He said, “I consider that the protection of national reinsurers should be made a central objective for the promotion and development of a national market.”
He indicated that reinsurers in Morocco have been experiencing difficulties since the signing of the various free trade agreements and the lifting of the legal cession of 10% to the national reinsurer, Societe Centrale de Reassurance (SCR).
He said, “To understand the issues, you have to start with a little history. When regional reinsurers began to flourish, notably Egypt Re in 1958 and SCR in 1960, along with the other Arab companies that sprang up in the 1970s, their aim was to give local markets a way to retain as much premiums as possible at home. This was the primary function of local reinsurers.One of UNCTAD's recommendations was the creation of national reinsurers.
“This made it possible to avoid the outflow of foreign exchange, particularly in the 1970s and 1980s when, for example, there was talk of increasing retention through reinsurance.”
Reinsurers as a market regulator
He added, “But these operators did not only have this role. If we take the example of SCR, which is a textbook case, this company not only allowed the retention of premiums at the national level but also played the role of market regulator.
“There are two different forms of regulation. In Morocco, the Insurance and Social Insurance Supervisory Authority (ACAPS) is the overall market regulator. But such supervision is carried out at the formal and administrative level of market organisation, laws, consumer protection…This is the primary function of a national regulator.
“But SCR, like all national reinsurers, regulated the market through reinsurance and premium rates. These reinsurers kept their markets from sinking into fierce competition.”
Mr Abouzaid added, “When you open up an insurance market too much to competition, it creates a race to the bottom. Operators start to compete with each other, and it ends up causing havoc for everyone.”
For instance, for major risks, industrial or commercial, SCR has made it possible to maintain acceptable technical pricing levels. This has enabled Morocco to avoid disasters, unlike in some countries of the Gulf or Southeast Asia where the rates became so low that the market results turned negative.
“In Morocco, since all risks passed through SCR, this had made it possible to maintain the stability of rates, especially for industrial and commercial risks and special risks,” he said.
Mr Abouzaid added that the reinsurance situation in Morocco has started to change. The market is gradually entering into a competitive spiral that will eventually harm it. Today, there are insurers that no longer cede their risks to SCR.
He suggested that to protect local or regional reinsurers, the authorities in the respective markets could introduce provisions such as the right of first refusal.
He said that in Morocco, the necessary legal framework exists and the Casablanca Finance City can play a big role in the development of reinsurance in Morocco, if the right of first refusal is put in place.