The Insurance and Social Welfare Directorate (DAPS) was established under the Ministry of Economy and Finance as the regulator and supervisor of the insurance and reinsurance sector in Morocco. The International Monetary Fund's (IMF) Financial System Stability Assessment (FSSA), published in 2003, commended the Moroccan authorities for the progress achieved in reforming the financial sector. However, the country was found to be in very low compliance with the Insurance Core Principles (ICPs), promulgated by the International Association of Insurance Supervisors (IAIS). Major deficiencies remained in the area of internal governance, internal controls, asset and risk management, as well as information sharing capacity of the regulator with foreign supervisory agencies. The IMF published an FSSA Update in 2008, which stresses that considerable progress has been achieved since the 2003 assessment with regards to insurance sector supervision. The IMF underlines that the supervision of insurance companies is "largely compliant with the IAIS principles." Furthermore, the legal framework, based on the European Union insurance directives, is complete and includes provisions on corporate governance and internal controls. Shortcomings remain with regards to the licensing procedure. The IMF recommends enhancing the independence of the regulator, and amending the Insurance Code to improve the licensing process. In July 2008, as reported in the IMF's 2008 Article IV Consultation report, the Moroccan authorities announced several planned measures to strengthen financial sector supervision, including making the insurance supervisor an autonomous entity, in line with the recommendations of the 2008 FSSA Update.

General Overview

The International Monetary Fund (IMF) conducted a Financial Sector Assessment Program (FSAP) in 2002 of Morocco's observance of the Insurance Core Principles (ICPs), among other factors, and reported its findings in its 2003 Financial System Stability Assessment (FSSA). The IMF report, in which insurance supervisory practices were benchmarked against ICPs and Methodology adopted by the International Association of Insurance Supervisors (IAIS) in October 2000, found that the country's compliance with the ICPs was very low. The main deficiencies found were identified in the area of internal governance, internal controls, asset and risk management, as well as information sharing capacity of the regulator with foreign supervisory agencies. The Insurance and Social Welfare Directorate (DAPS), under the Ministry of Economy and Finance (MoF), is responsible for the regulation and supervision of the insurance and reinsurance sector in Morocco.

The Moroccan authorities welcomed the IMF assessment in 2003 and started implementing the IMF recommendations through a government financial sector reform program supported by the World Bank. In a 2005 report, the World Bank reported that it had approved a Financial Sector Development Policy Loan to Morocco in order to "strengthen the enabling legal and institutional environment for financial intermediation and risk management, and to increase private sector role and participation in the provision of financial services" (p. i). The same report added that there were three supporting elements to this objective: "(1) improving the legal, regulatory and supervisory framework for the financial industry; (2) restructuring the public financial institutions; and (3) strengthening financial sector infrastructure" (p. 12). In the insurance sector, the reforms aim to align insurance supervision in Morocco with IAIS principles. At the time of the 2005 World Bank report, the Moroccan authorities had already issued a revised Insurance Code and important implementing regulations to the Code. The World Bank's 2006 Report on the Status of Projects in Execution pointed out that "progress towards achieving project development objectives has been substantial" (p. 2011). Regarding insurance supervision, the World Bank reported that prudential requirements and accounting standards had been enhanced.

In October 2008, the IMF conducted an update of its FSSA, and concluded that considerable progress has been achieved in insurance sector supervision since the 2003 FSSA. The IMF underlines that the supervision of insurance companies is "largely compliant with the IAIS principles" (p. 5). Furthermore, the legal framework, based on the European Union (EU) insurance directives, is complete and includes provisions on corporate governance and internal controls. Shortcomings remain with regards to the licensing procedure. The IMF recommends enhancing the independence of the regulator, and amending the Insurance Code to improve the licensing process. In July 2008, as reported in the IMF's 2008 Article IV Consultation report, the Moroccan authorities announced several planned measures to strengthen financial sector supervision, including making the insurance supervisor an autonomous entity, in line with the recommendations of the 2008 FSSA Update.

The insurance market appears to be both concentrated and stable, and has grown by 20 percent in 2007, notes the IMF's 2008 FSSA Update. There are 17 insurance companies in Morocco, with the largest three accounting for 53 percent of total insurance assets. The insurance sector also comprises one domestic state-owned reinsurance company, the Central Reinsurance Company (SCR). While the Moroccan insurance market is the leading market in the Maghreb countries, and the second largest in Africa, states the IMF, it is relatively small in comparison to other emerging market countries. In 2006, total insurance premiums amounted to USD 1.73 billion, roughly 3 percent of GDP.

The Principles

ICP 1 Conditions for effective insurance supervision

II

There is insufficient publicly available information as to Morocco's compliance with this principle.

ICP 2 Supervisory objectives

II

There is insufficient publicly available information as to Morocco's compliance with this principle.

ICP 3 Supervisory authority

II

The DAPS is responsible for the regulation and supervision of the insurance and reinsurance sector in Morocco. The IMF in its 2003 assessment recommended that the independence of the insurance supervisor be investigated and a new operational system be implemented. In its 2008 FSSA Update, the IMF reiterated that enhancing the independence of the regulator remains a priority. In addition, it was recommended to amend the Insurance Code to improve the licensing process . In July 2008, as reported in the IMF's 2008 Article IV Consultation report, the Moroccan authorities announced several planned measures to strengthen financial sector supervision, including making the insurance supervisor an autonomous entity, in line with the recommendations of the 2008 FSSA Update. Nevertheless, the available assessments do not directly address Morocco's compliance with this principle.

ICP 4 Supervisory process

II

There is insufficient publicly available information as to Morocco's compliance with this principle.

ICP 5 Supervisory cooperation and information sharing

II

The 2003 IMF assessment identified supervisory cooperation and information sharing among the major weaknesses of the insurance supervision framework. It was recommended that laws and regulations be amended to improve the MoF's cooperation with domestic and foreign authorities. The 2006 report by Oxford Analytica points out that, pursuant to the new Banking Law in 2006 (Decree No. 1-05-178 Promulgating the Law Related to the Establishment of Credit Institutions and Affiliated Organizations No. 34-03), the Commission for the Coordination of Institutions in Charge of the Financial Sector was established for the coordination of institutions in charge of financial sector supervision. The Commission is composed of the Central Bank of Morocco, the Securities Commission, and the DAPS. Nevertheless, the available assessments do not directly address Morocco's compliance with this principle.

ICP 6 Licensing

II

There is insufficient publicly available information as to Morocco's compliance with this principle.

ICP 7 Suitability of persons

II

The IMF's 2003 FSSA recommended that the MoF introduce requirements for approval of the Board of Directors and the managers of insurance companies. However, the assessment does not explicitly address Morocco's compliance with this principle.

ICP 8 Changes in control and portfolio transfers

II

There is insufficient publicly available information as to Morocco's compliance with this principle.

ICP 9 Corporate governance

II

At the time of the IMF's 2003 assessment, internal governance was identified as one of the major weaknesses of the insurance supervision framework. The IMF's 2008 FSSA Update indicates that the legal framework, based on the EU insurance directives, is complete and includes provisions on corporate governance. However, the available assessments do not explicitly address Morocco's compliance with this principle.

ICP 10 Internal control

II

At the time of the IMF's 2003 assessment, internal control was identified as one of the major weaknesses of the insurance supervision framework. The IMF's 2008 FSSA Update indicates that the legal framework, based on the EU insurance directives, is complete and includes provisions on internal control. However, the available assessments do not explicitly address Morocco's compliance with this principle.

ICP 11 Market analysis

II

There is insufficient publicly available information as to Morocco's compliance with this principle.

ICP 12 Reporting to supervisors and off-site monitoring

II

At the time of the World Bank's 2002 Report on the Observance of Standards and Codes on Accounting and Auditing, the institutional framework for accounting standards applied by the insurance companies was found to be inadequate. It further undermined investor's perception of the quality of financial information. The World Bank's 2006 Report on the Status of Projects in Execution indicates that, since the establishment of the National Accounting Council (CNC) in 1989, Moroccan accounting standards have improved significantly, but that inadequate enforcement and flawed standards-setting process impeded further progress. As reported in a regulatory and standard-setting framework assessment published by the Moroccan Certified Public Accountants Association in December 2005, the DAPS takes part in the CNC for any decision relating to the insurance sector accounting standards. Nevertheless, the available assessments do not explicitly address Morocco's compliance with this principle.

ICP 13 On-site inspection

II

The IMF's 2003 FSSA recommended increasing the frequency and quality of inspections conducted by the MoF. However, the assessment does not explicitly address Morocco's compliance with this principle.

ICP 14 Preventive and corrective measures

II

There is insufficient publicly available information as to Morocco's compliance with this principle.

ICP 15 Enforcement or sanctions

II

There is insufficient publicly available information as to Morocco's compliance with this principle.

ICP 16 Winding-up & exit from the market

II

There is insufficient publicly available information as to Morocco's compliance with this principle.

ICP 17 Group-wide supervision

II

There is insufficient publicly available information as to Morocco's compliance with this principle.

ICP 18 Risk assessment and management

II

The 2003 IMF assessment identified risk management as one of the major weaknesses of the insurance supervision framework. The World Bank's 2006 Report on the Status of Projects in Execution indicates that prudential requirements have been enhanced in Morocco. Nevertheless, the available assessments do not explicitly address Morocco's compliance with this principle.

ICP 19 Insurance activity

II

There is insufficient publicly available information as to Morocco's compliance with this principle.

ICP 20 Liabilities

II

There is insufficient publicly available information as to Morocco's compliance with this principle.

ICP 21 Investments

II

The IMF's 2003 FSSA recommended that the requirements on asset management be incorporated into legislation. A 2007 Working Paper published by Amor Tahari et al. for the IMF indicates that Morocco passed legislation in 2004 permitting insurance companies to invest 5 percent of their funds abroad, which "represents a step in the right direction" (p. 30). Nevertheless, the available assessments do not explicitly address Morocco's compliance with this principle.

ICP 22 Derivatives and similar commitments

II

The IMF's 2003 FSSA recommended that the MoF introduce rules on derivatives and off-balance sheet items. However, the assessment does not explicitly address Morocco's compliance with this principle.

ICP 23 Capital adequacy and solvency

II

The IMF's 2008 FSSA Update states that the Moroccan insurance sector has maintained a strong solvency margin, which stood at 5.12 times the minimum requirement in 2006. Nevertheless, the assessment does not directly address Morocco's compliance with this principle.

ICP 24 Intermediaries

II

There is insufficient publicly available information as to Morocco's compliance with this principle.

ICP 25 Consumer protection

II

The IMF's 2003 FSSA recommended adopting rules and regulations on market conduct for insurers and intermediaries. However, the assessment does not explicitly address Morocco's compliance with this principle.

ICP 26 Information, disclosure & transparency towards the market

II

There is insufficient publicly available information as to Morocco's compliance with this principle.

ICP 27 Fraud

II

There is insufficient publicly available information as to Morocco's compliance with this principle.

ICP 28 Anti-money laundering/ Combating the Financing of Terrorism

II

Due to the lack of legislation governing the participation of financial institutions in combating financial crime at the time of the IMF's 2003 FSSA, it was recommended that the Moroccan authorities "define a specific regulatory framework with respect to money laundering" (p. 46). The Law No. 43-05 Relating to the Fight Against Money Laundering was enacted on May 3, 2007. According to the IMF's 2008 FSSA Update, the Middle East and North Africa Financial Action Task Force (MENAFATF) has recommended a number of steps for strengthening the AML/CFT framework in Morocco, including a revision of the legal framework and the operationalization of the financial intelligence unit (FIU). The country's FIU was not yet operational at the time the IMF assessment was completed (July 8). The IMF's 2008 Article IV Consultation points out that the FIU is expected to be operational shortly, and that MENAFATF recommendations should be implemented to strengthen the AML/CFT framework. Nevertheless, the available assessments do not explicitly address Morocco's compliance with this principle.