owned by the state, either directly or through other state entities.<sup>Nevertheless,it appears</sup> to operate at arm's length from the govemment and to be highly<sup>efficientand profitable.</sup> It has a 36 percent share of total insurance company assets, but<sup>thisincludes theassets of</sup> pension funds, mostly of statutory bodies, that it administers<sup>butdoesnotinsure.</sup> Excluding this business, its share of total assets falls to 11 percent.

Dividing the 21 insurance companies by size reveals some<sup>interestingpatterns</sup> (Table 3)5. The four largest companies account for 76 percent<sup>oftotal assets,but 84</sup> percent of retained profits, while small companies account<sup>foronly3percent ofthe</sup> market. The 8 small companies as a group have negative<sup>accumulated (retained)profits,</sup> but they report as a group high solvency ratios. However, some of the small<sup>companies</sup> have strong balance sheets and sound operations.

**Table 3: Structure and Performance of Total Insurance Market, 2001**

|(percent)|4Large<br>Companies|9Medium<br>Companies|8Small<br>Companies|1Reinsurer|All<br>Companies|
|---|---|---|---|---|---|
|TotalAssets|75.7|20.7|2.9|0.6|100.0|
|EquityCapital|61.8|31.1|7.1||100.0|
|<br>RetainedProfits|83.8|21.2|-7.9|2.9|100.0|
|GrossPremiums|59.7|31.9|8.3|0.1|100.0|
|Equity/TotalAssets|7.86|14.44|23.47||9.69|
|<br>Equity/TotalPremiums|44.8|42.1|37.5||43.3|
|<br>ReturnOnAverageEquity|21.5|20.9|13.3||20.7|
|<br>ReturnonAverageAssets|1.73|2.93|2.94||2.00|
|<br>Profits/GrossPremiums|9.18|8.16|4.62||8.48|

ROE and ROA are equal to profits before taxes divided respectively by average<sup>equity andaverage assets.</sup> Source: Estimated on the basis of data collected by the FSC..

Profitability of the insurance sector is healthy, but not excessive,<sup>despitethehigh</sup> level of concentration of the industry. This supports the argument that the<sup>marketis</sup> contestable. The return on average equity (ROE) amounted to 21<sup>percentforall</sup> companies taken together in 2001, but was significantly lower for the<sup>groupofsmall</sup> companies. The return on average assets (ROA) amounted to 2 percent. It<sup>waslowerfor</sup> the large companies, because of their lower equity ratios and reached nearly<sup>3</sup> percent for the other groups of companies. A couple of individual companies report<sup>very high ROAs</sup> of well over 4 percent. These companies operate with very high equity ratios. In<sup>one case,</sup> equity capital exceeds 40 percent of total assets.

The insurance industry suffers from considerable cyclicality<sup>(Table4).In</sup> Mauritius this is linked to the impact of cyclones and other causes of large but<sup>infrequent</sup> losses. Judicious use of reinsurance facilities has, however,<sup>shieldedlocalcompanies</sup> from the full effects of such events. Cyclicality is also linked<sup>totheconditionsthat</sup> prevail in financial markets. While the level of interest<sup>rates inMauritiushasnot</sup> experienced the wide fluctuations that are seen in other countries, financial<sup>resultshave</sup> suffered from the volatility of local and intemational equity markets. Insurance

> 5 The reported data aggregate statistics of individual companies. Most companies have<sup>financialyears</sup> ending in December but several report at the end of June and some use other<sup>months.</sup>

5