With the largest population in the Middle East and a relatively established insurance sector, Egypt has long been a promising market for insurers. Domestically licensed companies have shown strong growth in recent years, driven by public expenditure on capital projects and increasing private sector activity. However, the sector’s impact on the lives of ordinary Egyptians has been limited, with 1% of the population covered, compared to a global average of over 6% and an African average of nearly 3%. The low penetration rates highlight considerable potential for further expansion, into which authorities aim to tap and double the market’s premiums by 2024. A new insurance law is expected to function as a legislative platform for future growth.
Long History
Egypt’s first domestic insurer, Al Ahlia Insurance, entered the market in 1900, ending a period of foreign domination of the sector. Locally owned El Shark Insurance and Misr Insurance were established in the 1930s, adding to an increasingly vibrant market, which by 1953 – when the country declared itself a republic – was served by 14 local and foreign companies. During the era of state-controlled economy that followed independence, however, the industry was reduced to four government-owned insurers.
After liberalisation in 1975 by then-President Anwar Sadat, new firms began to enter the market including the Suez Canal Insurance Company in 1979, Mohandes Insurance Company in 1980 and Delta Insurance in 1981. The Insurance Supervision and Control Law No. 10 of 1981, which underpins the sector, helped to sustain this market expansion and by the mid-1990s the sector was made up of 12 insurers – four state companies, six private players and two free-zone firms.
Due to a 1998 amendment to the insurance law, which increased the maximum foreign participation level in domestic insurance companies from 49% to 100%, this period saw the return of global insurance players to the market. Since then the most important structural change was a 2008 amendment instructing insurers offering both life and property cover to separate their lines of business.
Performance
Egypt’s insurance industry experienced notable growth in recent years. Life insurance lines performed particularly well in 2017, with new business and renewal premiums totalling LE23bn ($1.3bn), 41% higher than the LE14bn ($786.8m) of 2016, according to the Financial Regulatory Authority (FRA). Growth in premiums continued into 2018, with non-life premiums increasing 12% during the first 11 months of the year to LE28.2bn ($1.6bn) compared to the same period in 2017. Much of this gain was attributed to the liberalisation of the exchange rate (see Economy chapter), which prompted insurers to increase premiums across the board.
Other developments in the industry have also played a part, most notably the emergence of a new insurance scheme for the informally employed and low-income segment: Aman certificates, which can be purchased at four Egyptian banks by seasonal and temporary workers between 18-59 years of age. The certificates, launched in March 2018, range from LE500 ($28.10) to LE2500 ($140) and provide insurance and pensions with a 16% interest rate. Coverage for natural and accidental death is also offered, with a one-time payment of LE10,000 ($562) to LE250,000 ($14,000), or monthly pensions over five to 10 years. The government estimates there are 15m informal workers in the economy, including day labourers and the self-employed, all of which are entitled to purchase Aman Certificates without opening a bank account. Around 775,000 individuals have purchased certificates worth LE744.4m ($41.8m) as of March 2019, figures from the Central Bank of Egypt showed.
Market Structure
According to the Insurance Federation of Egypt (IFE), the industry body for the sector, there were 37 insurance companies operating in the domestic market in 2018, 14 of which were life companies and 23 of which offered non-life cover. The largest is the state-owned Misr Insurance, with a 51% market share in the general insurance market. The market is heavily concentrated at the top: in recent years the largest 10 insurers in Egypt have accounted for around 90% of the market and the top-five firms have enjoyed a market share of over 75%.
There are nearly 650 private insurance funds in Egypt established by companies, associations or professional syndicates that offer a wide array of insurance products. There are also four government insurance funds covering specific activities such as the insurance of fishing vessels or cover for postal service risks. There are three insurance pools in Egypt operated by the IFE with the voluntary participation of a number of insurers and the regulator: the personal accident pool for railway metro and road users; the decennial risks pool that covers the costs to rectify a total or partial collapse of a construction; and a nuclear risks pool recently revived by the IFE as Egypt plans to develop nuclear power.
Lastly, a large number of financial intermediaries connect insurers with clients or assist them with underwriting, including around 8700 brokers, 41 actuaries, 347 insurance consultants and nearly 500 surveyors and loss adjusters. Many of the more recent market entrants are takaful (Islamic insurance) operators. There are currently 10 such firms in Egypt – four in life insurance and six in non-life – and most have been growing faster than their conventional peers.
“Competition in the market is price-driven with low margins, so in addition to government spending, growth is coming from the expansion of the customer base where the low rate of market penetration allows significant room to expand,” Mohamed Moustafa Abdel Rasoul, managing director of Orient Takaful, told OBG. While the industry traditionally lacked comprehensive takaful regulations, in 2018 the IFE produced a list of proposed new regulations in response to the regulator’s request. Regulations include the separation of policyholders’ and shareholders’ funds and the workings of sharia boards. The regulator is expected to include some or all of the IFE’s suggestions in a new insurance law under discussion as of early April 2019.
Traditional firms are also entering into the market. In March 2019 financial investment and advisory firm Sarwa Capital received a licence from the FRA for Sarwa Insurance, which will focus on property and liability, and Sarwa Life Insurance, which will provide life and health insurance, as well as long-term savings products. Both companies were incorporated in 2018 with LE100m ($5.6m) in capital.
Regulation
The Egyptian insurance market is regulated by the FRA, formerly known as the Egyptian Financial Supervisory Authority. Since its establishment in 2009 the FRA has used a series of amendments to gradually reform the sector’s principal legislation, the Insurance Law of 1981, most notably with Law No. 10 of 2008 that established the capital, solvency and reserve requirements for the sector. This framework requires a minimum capital of LE60m ($3.4m) for non-life insurers, an asset-to-liabilities ratio of 120% and a range of compulsory reserves dependent on type of business. The FRA is in the process of drafting a new insurance law.
Recent & Upcoming Reform
In 2018 the regulator announced that the new legislation would make the agency the primary regulator for the sector, with control over all aspects of the business from licensing of companies to setting standards, regulating transactions, contracts and policies. In addition to introducing new compulsory lines, the legislation is expected to make insurance compulsory for small and medium-sized enterprises. Details of the draft publicised in early 2019 revealed the FRA proposes to raise the minimum capital requirement for life and property insurance companies by 150% to LE150m ($8.4m). Reinsurance companies, meanwhile, would see their minimum capital requirements increase to LE500m ($28.1m), up from the current LE60m ($3.4m).
The FRA hopes the law will spur growth over the coming years. It is currently implementing a plan with the IFE aimed at doubling premium volumes in the Egyptian insurance market from the LE23.5bn ($1.3bn) for the financial year ending June 2017 to LE50bn ($2.8bn) by 2022. The establishment of new compulsory lines is likely to play a part in this effort. The FRA is also attempting to ensure that government assets, many of which are uninsured or inadequately covered, are brought within the insurance system.
“Currently, many of the key facilities, buildings and projects in Egypt remain uninsured,” Mohamed Mahran, managing director of Allianz Insurance Company – Egypt, told OBG. “So while among international players in the market there is a culture of insuring assets, there is a huge opportunity for growth as recognition of the risks and benefits of insurance becomes more widespread.”
Improving consumer confidence is widely viewed as a prerequisite for the sustained expansion in gross written premiums (GWP). To this end, in August 2018 the board of the FRA approved draft regulations for a new fund that will guarantee the rights of insurance policyholders. The facility will protect customers against the risk of default by their insurers and will be funded by a LE50,000 ($2810) one-time contribution by all licensed insurance companies, in addition to a percentage of their annual premium. Premium derived from compulsory motor insurance cover will be excluded from the calculation, as a guarantee mechanism for this class of business already exists. When it is implemented, the scheme is expected to compensate policyholders for up to 80% of the value of their policies in the event that insurance companies fail to fulfil their obligations.
Retention
Retention rates in Egypt are high by regional standards, with the non-life segment showing an aggregate retention ratio of 57.5% in 2017, according to the IFE. Egyptian insurers were once required to cede up to 30% of their premium to the state-owned Egypt Re, but this mandatory cession ended in 2007 when Egypt Re was merged with Misr Insurance. A single compulsory cession remains in place: a 5% requirement to Africa Re, a regional multilateral insurance company with a local presence. Reinsurance activity in Egypt is governed by a reinsurers register formulated by the regulator, which includes a large number of global insurers that meet a number of criteria such as a minimum capital requirement of $60m and the attainment of a rating from one of the four major international rating agencies – AM Best, Standard & Poor’s, Fitch and Moody’s. In 2018 the regulator’s list of approved reinsurers was made up of 271 companies from markets as diverse as Vietnam, Oman and New Zealand. The most common reinsurance practise, however, is the establishment of straightforward treaty arrangements with reinsurers in Europe and the US.
Distribution
Data on distribution channels in the Egyptian insurance market is scarce, but an estimate by industry observer Insure Egypt suggests that in recent years around 35% of the sector’s GWP was secured by direct means, 35% from agents tied to a specific company, 25% from brokers and 5% from bancassurance. According to the IFE, there were over 8600 individual brokers and 68 corporate brokers in 2017. More corporate brokers continue to enter the market: in August 2018 the FRA approved licences for Anadel Insurance Brokerage, Milvik Egypt Insurance Broker and reinsurance specialist Belier Reinsurance Brokerage, bringing the total to 74. One of Egypt’s largest e-payment networks, Fawry, received a brokerage license from the FRA in January 2019.
Distribution methods vary significantly by line of business, with up to 90% of the oil and aviation business handled directly, for example. Bancassurance in Egypt, meanwhile, remains relatively undeveloped. Regulations were liberalised in 2013 and 2016, allowing insurers to establish partnerships with up to four banks, but the prohibition on banks receiving commissions and bank staff selling personal insurance cover means that bancassurance growth has primarily been driven by insurance sold on the back of loans, such as motor insurance tied with new vehicle sales.
The internet has played a limited role in the insurance market, but there has been movement to incorporate the technology into distribution channels. A 2015 regulatory change allowed for online sales in the areas of compulsory motor third-party liability (TPL), travel and term life insurance, and insurers are investing heavily in technology. In 2018 the FRA was reportedly considering allowing electronic payment companies to sell standard insurance policies instead of only collecting premiums. While the licensing of such activity is likely to be restricted to lines with less technical rules, increasing the capacity of e-payment firms to act as a distributor of policies would bring cost benefits for insurance companies.
Reinsurance
Egypt lacks a dedicated reinsurance institution of its own since the exit of Egypt Re from the market more than a decade ago. As such, local reinsurance activity is confined to a small number of companies taking on risk from their fellow insurers. The government has been studying the possibility of establishing a new national reinsurer since 2013, with initial plans calling for local insurers to contribute $200m to a locally funded institution, with further capital coming from banks and other institutions.
Fundraising, however, is the principal barrier to the establishment of the new reinsurer. In early 2017 Misr Insurance, a main participant in the project, revealed that the proposed capital of the new institution is likely to be cut to $50m due to difficulties in securing funding. In September 2018, however, Alaa El Zoheiry, the chairman of the IFE and managing director of Arab Misr Insurance Group, publicly stated that the capital of the proposed reinsurance company should not be less than $200m. He further noted that the length of time it takes new reinsurance companies to break even, around five to seven years, makes attracting suitable levels of investment challenging.
Lines
Accounting for 43% of GWP in 2017, the life segment is relatively large for the MENA region – a reflection of the maturity of the domestic insurance market. Nevertheless, the bulk of premiums in the Egyptian market, around 57%, are accounted for by non-life products. There are currently four compulsory lines: motor TPL; civil liability for accidents involving elevators; civil liability insurance for construction work; and accident insurance for rail and the metro. The most important of the mandatory lines is motor TPL for bodily injury, which has helped to establish motor cover as the largest source of premiums for Egypt’s insurers. Motor TPL and the comprehensive cover, which insurers are able to upsell, account for approximately 27% of total GWP.
Fire insurance, with around 17% of GWP, is the second biggest non-life business line and its growth driven by growing demand for residential and commercial real estate. Other significant business lines include medical cover (15% of GWP), accident (11%) and the protection of oil projects (11%). “The insurance market benefitted from the mandatory scheme for automobiles, so an expansion of mandatory coverage to other areas would likely benefit the market further,” El Zoheiry told OBG. “However, it is also true that insurers need to be innovative in developing products that match the needs of the local market.”
The IFE has for years lobbied for more compulsory lines, noting that other markets in the region have between 10 and 20. The industry body has submitted a number of draft bills to the regulator which, if incorporated in a new insurance law, will extend mandatory coverage to areas such as professional liability for doctors and lawyers and comprehensive legal liability for stadiums, clubs, theatres and cinemas.
In 2018 the FRA undertook a study looking at the potential premiums and collection methods which could be employed should the country move ahead with plans to introduce a compulsory insurance for foreign visitors. The FRA will reportedly launch a global tender to select an insurance provider once the results of the study have been assessed. Home insurance for fire and theft, currently voluntary, is another area in which the insurance industry has lobbied the government over the course of 2018. In the meantime, new lines of business are emerging. In the summer of 2018 the FRA approved Egypt’s first insurance policy for crops, which will provide compensation to farms and reclamation companies in the event of damages caused by events such as floods. An increase in government spending on agricultural projects to LE2.6bn ($146.1m) for FY 2019 has made agricultural cover a new priority within the insurance industry.
Health
The health insurance segment in Egypt is currently going through a process of significant change. For decades, the state-owned Health Insurance Organisation (HIO) struggled to provide affordable health care to Egyptian citizens. Of the approximately 60% of nationals covered by the system only around 6% benefit from its services. Instead, most pay their own way within the public system and around 10% of the population subscribe to a private health care insurance scheme. In April 2017 the Cabinet approved a national health insurance draft law and referred it to the State Council for legal review. The following December the Parliament gave the new Health Insurance Law its approval. The new law aims to overcome the shortcomings of the HIO by establishing a three-tier health care system of public and private providers. The first tier is comprised of health care units that refer patients to the second tier of hospitals or a third tier of specialised centres.
The required contribution for the system is a combined contribution of 5%, divided between a 4% employer contribution rate and 1% employee rate. The employee may be required to contribute at a higher rate if the individual has a non-working spouse or dependent children. Around 25% of the population, nearly 24m citizens, will have these fees paid for by the government. The law also establishes three new administrative bodies: a financing entity to collect payments; a health care body to oversee health care units and hospitals; and a supervisory institution that will handle accreditation, quality of service and supervision of operations. The plan is being rolled out across the nation in phases, starting in the summer of 2018 with Port Said, where 800,000 people benefitted from the system. Nationwide coverage is expected to be achieved by 2032. The implications of the new system for health insurance providers remain to be seen, as the new law does not address the role of private insurers. However, it is clear that employers may consider changing the private health insurance benefits they provide to employees according to how successfully the new system improves health care delivery. For this reason, in 2018 there were calls from the industry to establish a mechanism to link private sector insurers with the new national system.
Micro-Insurance
The proposed Insurance Act also establishes new standards for the micro-insurance segment, which has become a focus of both the FRA and the IFE in recent months. In July 2018 the IFE announced that it formed a committee in cooperation with the FRA tasked with promoting micro-insurance in Egypt. This development followed an announcement by Mohammed Omran, the chairman of the FRA, that revealed that the regulator was considering incentives to encourage micro-insurance activity such as waiving regulatory fees or encouraging the establishment of dedicated micro-insurance companies with lower capital requirements. The FRA subsequently published a number of amendments to the Insurance Act aimed at boosting micro-insurance, including allowing the establishment of dedicated micro-insurance companies with lower minimum capital requirements. From the perspective of insurers, one of the chief challenges to the promotion of micro-insurance products is the distribution cost arising from the high-volume, low-margin nature of the business.
The country’s post offices may provide a solution to this challenge, and some insurers – including Misr Life Insurance and the Egyptian Life and Takaful Company – already reached distribution agreements with the National Postal Authority. Barriers to growth in this channel remain, however. Current regulations require an employee of the insurance company to be present in the postal branch, a particularly costly requirement in rural areas. In July 2018 the FRA revealed that it was investigating ways by which insurance policies may more easily be issued through post offices.
Outlook
The devaluation of the Egyptian pound continues to affect the sector, with a rise in costs and premiums of medicine and auto parts because they are imports. Market fundamentals suggest there is considerable scope for real expansion on the back of the government’s capital expenditure programme and encouragement of the private sector. Life insurance premiums may rise in the short term with the introduction of new life tables by the FRA. Challenges to sector performance remain with risks including the threat of political disturbance and a failure to see through macroeconomic reforms. Specifically, the introduction of a value-added tax poses challenges to the sector. In terms of changes to market structure, the state’s anticipated exit from the sector may take longer than planned. In November 2018 Hisham Tawfik, minister of public enterprises, announced that the initial public offerings of two state-owned insurers, Misr Insurance and Misr Life, were to be postponed, with a timeline dependent on the restructuring of some of their operations. Up to 30% of firms were initially intended to be offered to the public in the first quarter of 2019 as part of a privatisation programme.
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