Tunis ReNews Letter

Pollution Risk

Insurance (Part I)

When we first hear the word «pollution», some scenarios come to our minds.

We can think of an oil spill in the ocean, a hut of a pollutant tank in the waters of a river, or dark clouds of smog hovering over a city ...

So many events that involve the responsibility of a company, then brought to disburse large sums to restore the initial state of the damaged natural environments because of their activity, especially with the introduction of the polluter pays principle, which is designed to pay for the costs of pollution control by the polluter who must not only compensate the damage to the environment but especially repair what has been destroyed.Pollution risk, or more precisely damage to the environment, refers to any damage caused by the «emission, dispersion, discharge or deposition of any solid, liquid or gaseous substance released by the atmosphere, soil or water, the production of odors, noises, vibrations, variations of temperature, waves, radiations, radiations, exceeding the measure of the ordinary obligations of neighborhood.»The insurability of Environmental Risk :The concept of damage caused by environmental risks appeared in the early 1970s. Previously, this risk was not identified as such, and non-nuclear pollution risk coverage was included in the company’s general liability policies. Damages to the environment are classified in 3 categories:• Accidental pollution generating immediate damage to an identified third party and resulting from a sudden and unforeseen event. It can, for example, occur following the brekdown of a supply line, a fire or the sinking/collision of ships.• Gradual pollution caused by an accident causing damage to an identified third party, and whose manifestation is slow and gradual (deferred with respect to the generating event). Example: very fine leaks, leakage resulting from a seal defect;• Chronic pollution generated by more or less continuous discharges such as those related to automobile traffic and historical (pollution from the past)

N° 26

E d i t o r i a lGlobal reinsurance trends :The famous international meetings of insurance and reinsurance professionals of Monaco and Baden-Baden have marked the start of the reinsurance rate negotiations for January 1st 2019 renewals. These renewals are taking place in a difficult context of down cycle for the last 5 years.The global non-life insurance sector is in the midst of a weak phase of the profitability cycle, reflecting soft market conditions, low investment returns and high equity levels:Data analysis shows that insurers in the major Western and Japanese markets, need to improve their underwriting margins (technical profit as a percentage of premiums) by 5 to 9 percentage points if they want to generate a desired return on equity of 10% in the future.The losses related to the events that occurred in 2017 were not sufficient to achieve the expected dynamic change in the market. The rate increases for business lines not affected by the events, were lower than initial expectations.Given the trends commonly observed in recent renewals, the main conclusion regarding the current market situation is that «the environment of the P&C global reinsurance market remains difficult», characterized in particular by fierce competition in the primary insurance as well as reinsurance markets. Thus, despite the huge losses due to natural catastrophes of the past year, prices rose less than expected in the affected regions and programs while in loss-free programs, rates have been stabilized after having already reached a low level. At the same time, the capital resources available to most insurers are considered good, but the retention levels remain high, affecting the demand for reinsurance coverage.However, some professionals remain optimistic and expect stability in prices and overall conditions for the January 2019 treaty renewals as well as promising opportunities for the coming year, due to digitization, increased demand for cyber-risk coverage and various openings in Asian markets.

Lamia Ben Mahmoud

Head Office- Tunis12, Avenue du Japon Montplaisir - B.P 29 - 1073 TunisPhone : (216) 71 904 911- Fax: (216) 71 904 930

E-mail : tunisre@tunisre.com.tnwww.tunisre.com.tn

: www.facebook.com/Tunis-Re-178608322175326/

Third Quarter 2018

Environmental pollution is an incurable

disease. It can only be prevented

However, the degradation of the environment has been increasing in recent years.

In September 2014, a law on sanctions against the environmental infringing offenders was passed by the Assembly of People’s Representatives. One of the main measures of this law is “the polluter pays” principle. From an insurance point of view, the Environmental Impairment Liability is not really developed in the Tunisian market. Apart from the classic Third-Party liability policies that cover accidental pollution insurance and exclude any non-accidental or gradual pollution, there are no Third-Party Environmental Impact Liability policies. Besides, high-risk industries and ship owners have contractual covers with the London market and P & I Clubs respectively.

Conclusion :

The risk of «environmental damage», more than thirty years old, is still considered as emerging, with no history sufficient to have efficient models. The solution for the insurability of this risk is the creation of co-(re)insurance groupings like ASSURPOL in France created in 1989. There are similar groups in Italy (INQUINAMENTO), the Netherlands (NMP) and in Spain (PERM). A system of this type has the advantage of encouraging companies to comply with regulations, particularly on hazardous installations, and to take the preventive measures imposed during environmental audits prior to underwriting. Other alternative financing mechanisms exist especially for large industrialists who prefer self-insurance or the use of «captive reinsurance» companies.Collision and Maritime Pollution in the Mediterranean 07.10.2018 :

A tide of fuel ran for about twenty kilometers, in spots dislocated by the wind, off Corsica. The quantity of fuel that has poured into the Mediterranean is estimated at 600 m3.

This pollution follows the Sunday 07/10/2018 collision of the Tunisian ro-ro ship Ulysse, from Genoa (Italy) to Tunis, with the Cypriot container ship CLS Virginia, then at anchor about 28 km north-west of Cape Corsica.

The shock caused a breach in the hull of the container-ship, releasing fuel oil from the latter.

> To be continued …By Monia Ben Said

Pollution Risk Insurance (Continued) Liability insurance contracts, being based on the presence of hazards, do concern only the first two categories, namely the accidental and gradual pollutions. However, the classic Third-Party Liability policies only deal with sudden and accidental phenomena and not with gradual harms to the environment. Chronic and historical pollution, for their part, are not insurable.

The specificity of the environmental risk

Traditional insurance policies offer some forms of environmental pollution cover, but are often insufficient. The reluctance of insurers and reinsurers to establish more precise and sophisticated policies is due to insufficient statistical data to assess the frequency and extent of potential damage, the very high cost that a loss can cause and the uncertain and rapidly changing legal context.

For a more complete cover of the environmental risk, it is therefore necessary to purchase specific policies, which offer broader and more appropriate coverages.Furthermore, it should be noted that the liability of ship owners linked to pollution is provided by the P & I (Protection & Indemnity) Clubs.

The Third Party Environmental Impact Liability

This coverage, which complements the company’s general Third-Party liability policy, covers bodily, material and immaterial damage caused to third parties as a result of environmental damage, for which the company’s responsibility is in question. It intervenes for any type of pollution or nuisance, accidental or gradual.

In addition, it covers environmental damage, off-site remediation costs, on-site remediation costs, operating losses, and defense costs.

The scope of the pollution risk in Tunisia:

The management of pollution in Tunisia, initiated since the creation of the ONAS (National Office of Sanitation) in 1974, became a national priority from the creation of the ANPE (National Agency for Environmental Protection) in 1988 and the Ministry of the Environment and Spatial Planning (1991), reflecting a growing priority linked to several factors including rapid urbanization and economic development, which was accompanied by a major effort of industrialization of the country. The most polluting activities include mining and phosphate processing, particularly in the Gabes, Gafsa and Sfax regions.

Certainly, Tunisia respects international standards and regulations concerning industrial pollutants.

CompanyPremiums Losses Investments

Sept-18 Sept-17 Var % Sept-18 Sept-17 Var % Sept-18 Sept-17 Var %

STAR 288.733 292.759 -1.4% 178.022 131.316 36% 45.524 40.979 11%

ASTREE 127.150 116.923 9% 38.850 37.909 2% 18.730 16.659 12%

SALIM 79.753 68.731 16% 36.645 35.134 4% 7.633 7.125 7%

Tunis Re 101.160 87.689 15% 56.603 53.226 6% 15.764 12.073 31%

Stock market : Figures as at 30.09.2018 of the listed Insurance Companies (in M TND)

aCtiVitY FiGUrES Tunis Re

Tunisian Market

The highlights having marked the activity during the

3rd Quarter of 2018

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Activity Figures of Tunis Re: 3rd Quarter 2018

Activity Figures of The Tunisian Insurance Sector as at 30.06.2018

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At June 30th, 2018, The Insurance sector in Tunisia has been characterized by : 2016 2017 Evolution 30/06/2017 30/06/2018 Evolution

Turnover 1 855.3 2 089.2 12.6% 1 161.8 1 247.6 7.4%

Motor 835.0 940.4 12.6% 523.5 551.8 5.4%

Life 374.7 442.3 18% 222.8 254.9 14.4%

Others 645.6 706.5 9.4% 415.5 440.9 6.1%

Claim Charges 1 017.6 1 051.2 3.3% 483.4 556.0 15%

Motor 567.4 575.3 1.4% 258.6 292.7 13.2%

Life 116.3 137.0 17.8% 63.30 75.90 19.9%

Others 333.9 338.9 1.5% 161.5 187.4 16.1%

Nbr of underwritten policies 2 749 002 2 838 753 3.3% 1 367 409 1 456 337 6.5%

Motor 1 484 114 1 512 615 1.9% 833 747 881 335 5.7%

Life 834 543 877 902 5.2% 285 633 315 452 10.4%

Others 430 345 448 236 4.2% 248 029 259 550 4.6%

Nbr of Reported Claims 1 252 683 1 446 833 15.5% 759 520 838 203 10.4%

Motor 259 475 279 815 7.8% 141 088 141 003 -0.1%

Others 993 208 1 167 018 17.5% 618 432 697 200 12.7%

Investments 4 537.7 4 861.7 7.1% 4 694.3 5 264.3 12.1%

Non-Life 3 242.3 3 359.5 3.6% 3 290.7 3 691.8 12.2%

Life 1 295.4 1 502.2 16% 1 403.6 1 572.5 12.0%

in M TND

In TND

3rd Quarter 2017 3rd Quarter 2018 As at 30.09.2017 As at 30.09.2018 2017PREMIUMS

AcceptanceLife & Non Life 21 869 733 25 425 095 80 057 988 91 017 591 110 838 128

Retakaful 1 743 797 3 657 727 7 631 005 10 142 439 10 834 115

TOTAL 23 613 530 29 082 822 87 688 993 101 160 029 121 672 243

RetrocessionLife & Non Life 8 757 200 8 745 492 30 756 798 34 190 710 47 130 198

Retakaful 607 068 947 796 1 628 594 2 613 431 2 279 438

TOTAL 9 364 267 9 693 288 32 385 392 36 804 142 49 409 636

N E T 14 249 263 19 389 534 55 303 601 64 355 887 72 262 607

ACQUISITION COSTSAcceptance

Life & Non Life 3 037 922 6 191 316 19 777 979 23 210 497 27 375 836

Retakaful -38 315 612 265 1 596 396 2 175 036 2 556 434

TOTAL 2 999 606 6 803 582 21 374 375 25 385 533 29 932 270

RetrocessionLife & Non Life 996 099 1 444 600 8 555 868 10 385 255 9 765 297

Retakaful 171 578 200 433 529 028 799 039 592 131

TOTAL 1 167 676 1 645 033 9 084 895 11 184 294 10 357 428

N E T 1 831 930 5 158 549 12 289 480 14 201 239 19 574 842

INCURRED LOSSESAcceptance

Life & Non Life 20 005 272 23 439 538 49 513 482 51 599 305 72 330 494

Retakaful 1 014 984 2 342 553 3 712 754 5 004 123 7 195 641

TOTAL 21 020 256 25 782 091 53 226 235 56 603 429 79 526 134

Retrocession

Life & Non Life 11 503 032 8 835 326 21 256 247 19 716 771 33 307 433

Retakaful -31 059 458 404 382 709 809 922 1 871 339

TOTAL 11 471 973 9 293 730 21 638 956 20 526 693 35 178 773

N E T 9 548 283 16 488 361 31 587 279 36 076 736 44 347 361

FINANCIAL INCOME3rd Quarter 2017 3rd Quarter 2018 As at 30.09.2017 As at 30.09.2018 2017

Financial Income 3 917 282 4 964 621 11 894 092 15 498 221 16 633 919

Financial Income Retakaful 67 357 93 122 178 461 265 692 269 102

TOTAL 3 984 639 5 057 742 12 072 553 15 763 913 16 903 021

Director of Publication : Mrs Lamia Ben MAHMOUD

Société Tunisienne de Réassurance 12, Avenue du Japon Montplaisir - B.P 29 - 1073 Tunis - Phone : (216) 71 904 911 Fax: (216) 71 904 930 R.C. : B1115971996

Contact : Marketing Department Web site : www.tunisre.com.tn Email : mark@tunisre.com.tn

n E w Sinternational

IFRS 17 : Insurers request additional delays

Many insurance and reinsurance associations have expressed concerns about the implementation deadline of IFRS 17, which is expected on January 1st, 2021, replacing IFRS4 for insurance contracts. This is owing to some issues that should be resolved to ensure the quality and especially the operational feasibility of this new international standard.

UK Insurers & Banks need ‘credible plans’ to deal with climate change risksThe Bank of England “BoE” expects British banks and insurers to understand how climate risks will affect their business models and then to come up with credible plans for protecting themselves against risks from climate change and may need to hold more capital.Separately, the BoE expects to issue further guidance on best practice 12-18 months after the supervisory statement has been finalized.

SCOR rejects takeover offer by CovéaMutual insurer Covéa (MAAF, MMA and GMF) attempted to enter into negotiations for a takeover bid for 100% of the reinsurer’s capital. But the reconciliation proposal to the Group Scor, of which Covéa is a shareholder, was met with opposition from SCOR’s executive committee.Google invests in insurance

CapitalG, the investment arm of the US giant Google, has just joined the investor base of the brokerage software company “Applied Systems”, with a minority stake. Applied Systems gains access to Google expertise in areas including artificial intelligence, machine learning and digital marketing to drive innovation within the global insurance ecosystem.Mergers & Acquisitions :• Marsh & McLenan has reached an agreement to acquire Jardine Lloyd Thompson Group plc Thompson «JLT». The transaction amount is $ 6.4 billion.• AXA completed the acquisition of the Bermudan group XL Catlin. The transaction amounts to 15.3 billion USD.• The group Sanlam has finalized the acquisition of the Saham Finances Group.• Hanover Insurance sold Chaucer to “China Re”.

Appointments • Mr. John Neal was appointed CEO of «Lloyd’s» to replace Inga Beale. • Mr. Bertrand Romagné was appointed President of L’Apref, succeeding Denis Kessler, CEO of the Scor Group. • Mrs. Wided Belhouchet has been appointed CEO of «CASH Assurances». • Mr. Abdulhakim A. Zagalai was appointed Chairman of the Board of «Libya Insurance Co.» and Mr. Ahmed M. Enkissa General Manager. • Adame Ndiaye has resigned from his position as Deputy General Manager of Sen Re.

Events• The 43rd FANAF General Assembly will be held from 17 to 21 February 2019 in Tunis, Tunisia.

nationalTunis Re Flash Infos

• Tunis Re organised on September 18, 2018, a workshop on «Cyber Risks Insurance» led by imminent Tunisian and foreign experts.

• Tunis Re organises on November 13, 2018, a symposium under the theme «What insurance solutions for the risk management of agricultural calamities in Tunisia ?».

High cost of Natural Catastrophes in Tunisia

According to the Global Assessment Report on Disaster Risk Reduction, the economic losses caused by natural catastrophes in Tunisia could reach US$ 138 million per year, according to M. Riadh Mouakhar, Environment Minister, at the opening of the African-Arab Platform on Disaster Risk Reduction held in Tunis from 9 to 13 October 2018. While adding that the losses due to Cat-Nat in Tunisia over the last three decades exceed one billion dinars.

In view of this high exposure, worsened by the climate change phenomenon, it becomes imperative to establish an insurance coverage scheme against the risks of natural disasters.

Development of Bancassurance

As part of the ongoing reform of the Insurance Code, discussions are focusing on expanding the insurance network and extending it to other operators in the financial sector. This was the topic of the seminar jointly organised on 23rd October by the Tunisian-French Chamber of Commerce and Industry «CTFCI», the Tunisian Federation of Insurance companies «FTUSA» and the Tunisian Professional Association of Banks and Financial Institutions «APTBEF».

As an illustration, the amount of insurance generated by bancassurance does not exceed 11% of the total insurance premiums collected in Tunisia, a total of TND 445 million.

Sale of Zitouna Takaful

Majda Tunisia, the Tunisian subsidiary of the Qatari Majda Group, won the tender, for 370 million dinars, launched by El Karama Holding for the sale of 69.15% of the capital of Zitouna Bank and 70% of the capital of Zitouna takaful, specialised in Takaful insurance.

Agreement

The Senegalese reinsurer «SEN RE» has just obtained the authorisation of the Ministry of Finance to open a representative office in Tunisia.

Appointments

• Mr Habib Ben Hassine, General Manager of the Tunisian Insurance and Reinsurance Company «MAGHREBIA», was elected as President of the Tunisian Federation of Insurance Companies «FTUSA» and Mr Yazid Sellaouti, General Manager of «Lloyd Assurance» as Vice-President.