While the summer of 2013 saw further instability in the broader political arena, Egypt’s insurers have largely avoided the worst excesses of the fallout of the past two years. The Egyptian insurance industry is characterised by considerable competition on price, low market penetration and the continued dominance of the state-backed Misr Insurance. The country’s 2011 revolution was followed by deterioration in the security environment, leading to an increase in claims paid in some segments, yet premiums and profits have also grown, driven by both strong technical returns and well-performing investments, and accompanied by expanded strikes, riots and civil commotion (SRCC) coverage. Medium-term growth areas include the medical segment and takaful (Islamic insurance).

SECTOR STRUCTURE: There are 30 companies active in the Egyptian insurance market. Of these, 18 are property and casualty firms, while 10 are life and personal insurance firms; the remaining two comprise the country’s export credit guarantee company and a cooperative insurance society. In 2008 the authorities issued a law obliging firms offering both life and non-life products to split these activities into separate companies within two years, extendable subject to approval from sector regulator the Egyptian Financial Supervisory Authority (EFSA). In practice not all firms have fully separated their life and non-life activities yet.

The state is the dominant player in the sector through the government-owned Misr Insurance Holding Company, which has two subsidiaries, Misr Insurance ( non-life) and Misr Life Insurance. The firm was created in 2006 through the consolidation of four state-owned firms into a single company. According to the EFSA, the firm accounted for 56.7% of written non-life premiums in the 2011/12 fiscal year (which runs from the beginning of July to the end of June in Egypt), leaving private firms with the remaining market share of 43.3%.

Some of the largest private insurance firms in the country include Suez Canal Insurance, which had written premiums of around LE385m ($54.8m) in 2011/12, Arab-Misr Insurance Group with LE303m ($43.1m) and Allianz Insurance Egypt with LE241m ($34.3m).

REGIONAL STANDING: Although it has a certain amount of heft in total volume of premiums, the market remains underdeveloped by international and regional standards. In absolute terms, the market was the fourth largest among Arab countries in 2011 (behind the UAE, Saudi Arabia and Morocco) and the third largest in Africa (behind South Africa and Morocco). Per capita insurance premiums stood at $20.80 in 2011 according to Swiss Re’s “World Insurance in 2011” sigma publication, the lowest of all the Middle East and North African countries listed.

By way of comparison with other non-oil-rich states in the region, per capital premiums stood at $98.5 in Jordan, $88 in Morocco and $33 in Algeria. However, the country performed better in terms of insurance penetration, measured as premiums as a percentage of GDP, which Swiss Re put at 0.73% (0.41% for non-life and 0.31% for life), outperforming both Algeria and Qatar.

Industry players say they believe penetration is likely to grow in the near term. “I hope to see a penetration rate of 1.5-2% within the next three years,” Adel Moneer Rabeh, vice-chairman for operations and insurance at Misr Insurance, told OBG.

PREMIUMS: Total insurance premiums – including inward reinsurance as well as direct written premiums – paid to insurance companies stood at LE11.02bn ($1.57bn) in 2011/12, up from LE10.14bn ($1.44bn) the previous year, as per data from EFSA. This represented a rise of 8.7% in nominal terms. Contributions to private insurance funds, of which there are 640, stood at LE4.17bn ($593m), up from LE3.85bn ($548m) in 2010/11. Total property and casualty premiums were LE6.53bn ($929m) in 2011/12, while life premiums stood at LE4.49bn ($639m). Life premiums were up 12% on the previous year, nearly double the 6.6% achieved by the property and casualty segment.

However, over the longer term growth has been stronger in property and casualty, with turnover up some 46.3% on 2007/08 figures, compared to a 36.2% increase for the life segment.

Supplementary car insurance was the largest category of insurance by total premiums in 2011/12, at LE1.37bn ($195m), or 20.9% of all premiums, followed by fire insurance with LE963.9m ($137.2m), or 14.8%.

CLAIMS: Paid claims rose at a rate of 32.8% in 2011/12 to LE7.79bn ($1.11bn), significantly outstripping premiums growth. The increase was driven by a 41% surge in non-life paid claims, which in turn resulted in large part from a 95% surge in fire insurance payouts and an 83% uptick in inland transport insurance paid claims. The latter likely resulted from a post-revolution deterioration in the security situation on roads in some parts of the country and a concomitant rise in incidents such as hijackings of cargoes.

The upheaval in 2011 has also been followed by a major increase in car theft. According to Ministry of Interior figures, the number of stolen vehicles rose from 4973 in 2010 to 21,166 in 2012. However, companies say that the situation is improving.

“There was an increase in claims for theft, in particular in the motor section, but so far it has been manageable and while the number of claims has been fluctuating, the trend is downwards,” Tarek Jabr, deputy managing director for claims, risk and compliance at local firm Royal Insurance, told OBG.

Ahmed Moawad, insurance researcher at the Insurance Federation of Egypt (IFE), said that as a result of the situation, car theft insurance premiums have been raised by 50%; customers can choose not to pay the additional amount, but in the event their car is stolen, they receive only three-quarters coverage in the event of the insured car being stolen.

INVESTMENTS & PROFITS: Insurance firms’ total investments were worth LE38.68bn ($5.5bn) in 2011/12, up 9.4% on the year prior. Income from investments rose to LE3.35bn ($477m) from LE2.74bn ($390m) the year before. The increase helped companies’ combined net income for the year rise 43.3% on 2010/11 figures, to LE894m ($127.2m). Misr Insurance’s profit stood at LE563.5m ($76.3m), while private firms’ aggregate profits were LE330.8m ($47.1m). The increase in profitability is in line with, and stems from, medium-term trends within the sector. Rabeh told OBG that while premium growth has slowed recently, technical results have been improving – as a result of the underwriting cycle as well as pressure on companies from reinsurers to improve their technical returns – at the same time as returns on investment have been strong due to the high interest rate on government bonds.

GROWTH AREAS: Segments that are currently witnessing especially strong growth include takaful (see analysis) and inland travel insurance, premiums of which expanded by approximately 40.5% between 2010/11 and 2011/12. This is likely a result of the aforementioned concerns about increased security problems such as the theft of cargoes on desert roads following the 2011 revolution. Medical insurance saw the next largest increase in the period, at 17.3%.

“There is huge potential for growth in medical insurance, in particular for low-cost coverage,” said Josiane Hakim, managing director of MedCom HealthCare, a local operator, echoing the sentiments of most industry players who spoke to OBG.

“There are 90m Egyptians, less than a million of which currently have private health insurance, and the public health system leaves a lot to be desired for,” she told OBG. “Egyptians also tend to prefer forms of insurance from which they feel they get something ‘back’, such as medical and retirement insurance.” Few firms currently offer private medical insurance to individuals, a market that MedCom intends to target in the future.

One characteristic of the regulatory framework in Egypt is that firms are obliged to offer all major forms of insurance within their chosen segment (i.e. life or non-life), which blocks the emergence of firms specialising in one area, such as health.

A law allowing the formation of specialist medical insurance firms was expected to be passed by parliament in 2011 but was put on hold as a result of the political upheaval following the fall of Hosni Mubarak’s regime. Hakim said she believed there was little prospect of the law passing soon.

“Everything is up in the air at the moment,” she told OBG. However, she also noted that the delay in passing the law was not the main obstacle to the development of the segment. “Specialist firms can still market their products via a fronting company; what is missing is foreign backing, expertise and training. There is lots of room for expansion in a wide range of niches but there is a need for foreign firms to provide support through sharing their experience and knowhow.”

One potential issue of concern regarding the prospects of the health segment is the government’s plan for the establishment of a comprehensive health insurance scheme covering all Egyptians. Details of the project are currently scarce but there have been concerns that it could undermine the market for private health insurance. However, Hakim told OBG she believes such fears are groundless. “The universal health law has been pending since 2006 and it remains unclear where the financing for a new system will come from. Furthermore, any such system would likely provide minimal coverage and leave room for complementary insurance, so it is unlikely to be a threat.”

NEW OFFERINGS: Within the medical and other segments, microinsurance may be set to emerge as a new growth niche. “Companies tried to launch microhealth and microlife insurance in the past but the distribution and collection costs made it impractical,” Rabeh told OBG. “However a potential major breakthrough is coming as the Central Bank is looking at allowing money transfers to be made via mobile phones, which could open up the lower end of the market.”

There has also reportedly been a significant rise in demand for political violence and riot coverage since 2011. “The revolution and the instability that followed it helped many people understand the need for insurance,” Ashraf Kadry El Sharkawy, former chairman of EFSA, told OBG. In the wake of the 2011 upheaval, the IFE drew up a new political violence policy. The new product is essentially SRCC, (coverage for which was already available in Egypt), policy that also offers coverage for a variety of related risks including terrorism, sabotage, strikes, riots and civil commotion, insurrection, revolution and rebellion, malicious damage, war (and/or civil war), mutiny and coup d’état. The policy is mostly being offered as an add-on to fire and burglary policies. The IFE’s accident committee was due to approve the policy in mid-March 2013, after which it was expected to be submitted to the IFE’s executive council.

There are also opportunities for growth in the life segment. “Egypt currently lacks the concept of pensions and annuities, which could become a promising area, especially in the medium income family market,” Rabeh said. “The only obstacle is the requirement for a more stable investment environment.”

REINSURANCE: In 2011/12, reinsured non-life premiums amounted to LE3.19bn ($454m), or 48.8% of total non-life premiums, while reinsured life premiums stood at LE224.2m ($31.9m), or 5% of total life premiums.

There have been no dedicated Egyptian reinsurance firms since 2004, when Egyptian Reinsurance closed, meaning most reinsurance is obtained abroad. Doing so can be problematic for some parts of the market. “Obtaining reinsurance can be a challenge for some firms as the high degree of competition has put pressure on technical results,” Rabeh told OBG, though industry players stressed that this was not an issue for profitable firms. “Some reinsurers made losses in Egypt and unfortunately left the market,” said Zaher M El Kassar, chief executive, non-life claims and medical insurance sector, Delta Insurance. “Others came and took their place, but the departure of some reinsurers underlines the need for firms to pursue sound business.”

Moawad told OBG that problems in obtaining reinsurance were exacerbated in early 2013 by a shortage of foreign currency affecting the economy as a whole that was making it hard for some companies to obtain currency in order to pay their reinsurance premiums. However, he added that most companies, in response to IFE enquires on the matter during the second quarter of the year, had informed the IFE that they were not facing such difficulties and had already paid due reinsurance premiums to reinsurers.

BROKERAGE: Brokerage assets stood at LE64m ($9.11m) at the end of 2011, up from LE37m ($5.27m) a year earlier, while net profits were LE8m ($1.14m), up from LE6m ($853,800) in 2010. Prior to the passage of a new law in 2008, only individuals were permitted to provide brokerage services. Hakim, who provides brokerage services in addition to running MedCom, said that the brokerage market was plagued by problems and that brokers had a poor overall reputation in the industry, though she added that some insurance firms also behave unethically towards brokers by, for example, poaching clients.

“There are very few prerequisites or qualifications needed to establish oneself as a broker and there have been a lot of cases of people taking premiums and failing to pass them on to the insurer,” Hakim told OBG. “However the situation is gradually getting better; for example to register as a broker you now have to pass an exam. It is too easy, but it nevertheless reduced the number of brokers in the market from 8000 to 5000.”

SECTOR REGULATION: Until 2009 the insurance industry was regulated by the Egyptian Insurance Supervisory Authority; however that year the body was merged into EFSA, which is now responsible for the sector’s oversight. The minimum capital requirement to establish a new insurance firm is LE60m ($8.54m), of which half has to be paid up. However, El Sharkawy told OBG that in practice the body does not give licences to firms with less than LE100m ($14.23m) paid up capital.

Industry players are calling for a number of regulatory changes to support the development of the sector, such as more mandatory products. “The market lacks some important compulsory forms of insurance, including obligatory professional liability insurance and government building insurance,” said Rabeh. “There are more mandatory products in Morocco, for example,” he said, arguing that this helps to explain why the Moroccan insurance market is bigger than in Egypt despite the smaller size of the Moroccan economy and population. Rabeh said that the industry had been pushing for more products to be made mandatory for several years, so far without result. “There is a particular need for more compulsory forms of insurance now, given the safety and security situation,” he told OBG, adding that there may be some movement on the subject following the next parliamentary elections.

Some industry players also say there is a need for tighter regulatory standards and more robust enforcement to curb commercially unjustifiable and unethical activity spurred by price competition.

“At the moment competition in the market is based entirely on price rather than quality, which is not healthy; competition is currently neither balanced nor fair,” said Rabeh. “Too many companies entered the market and all are looking for a share of the market, often by cutting down rates. However, there are limits to how far they can go; for example beyond a certain point they cannot get reinsurance.”

At the same time, others are calling for tighter enforcement. “There is a need for more regulation such as a code of ethics and for rules imposing a high standard of training for underwriting, claims and reinsurance activities,” El Kassar argued. “There should be penalties that are backed by law and properly enforced; otherwise some companies will feel they can do anything. Some firms currently compete on the basis of ignoring directives that others are following.”

The authorities say they address claims of unhealthy competition within limits. “There is a free market and we do not interfere in pricing; however, if a firm is offering products at prices that are not technically justifiable we will intervene,” said El Sharkawy. “Part of the problem is that competition is on price only; there is a need for more competition as regards to the offering itself in respect for example to terms, contracts, offers of additional coverage and so on.”

However, the authorities are also undertaking steps towards beefing up enforcement. “Current regulations only allow for either very minor sanctions such as warnings or drastic action such as barring firms from issuing new policies. There is a need for an escalating scale of sanctions, which should be unified across all financial services,” said El Sharkawy, explaining that a new law being planned will allow the body to impose a wider range of sanctions, among other changes.

HUMAN RESOURCES: Finding and retaining talent can be a challenge for Egyptian insurance companies, with many industry insiders highlighting the need for more skilled individuals in the sector. “Liberalisation saw the market expand from seven to around 30 companies, so there is lots of competition for expertise, which is lacking in both quantity and quality,” Rabeh told OBG.

One problem affecting the sector in particular is a shortage of qualified actuaries, with the consequence that actuaries advise multiple firms simultaneously. While there are efforts under way to improve the situation, significant support is needed from outside of Egypt, particularly from reinsurers. Such help and investment could potentially amount to a win-win situation.

Hakim told OBG, “There is a need for support from international players, not necessarily in the form of major capital investment but rather as regards expertise, training, branding and so on; Egypt in turn could be a very promising market for foreign firms.”

OUTLOOK: With insurance uptake low even by North African regional standards, there is ample room for growth. However this will require an increase in popular awareness of the product, the achievement of which will be a challenge, said Jabr. “It is increasing, but not rapidly or to the extent that it needs to. Even staff in charge of insurance matters within companies often lack a proper awareness of it.” Another requirement is the resolution of the country’s post-revolutionary political problems, which industry figures say will open the door to sector growth. “There is a need for the country’s overall situation to stabilise before firms can start to invest heavily,” said El Kassar. “However once things settle down, the opportunities will be enormous.”