Growing by leaps and bounds

For long inaccessible and lacking transparency, Egypt's insurance industry of today is opening up to private capital and becoming increasingly liberal and sophisticated. Borham Atallah monitors the transformation
With more new companies entering the market and greater efforts being made to open up the industry, the buzzword for Egypt's insurance sector today is definitely liberalisation.
The country's transition towards a market-driven economy and its commitment to complying with the 2003 General Agreement on Trade in Services (GATS) deadline have been the main driving forces behind this transformation.
In addition, there is an increasing realisation on the part of the government that a more liberalised insurance sector will give a bigger push to investments and, eventually, the overall economy by removing some of the risks for companies that engage in major projects, as well as the pooling of individual and corporate policy holders' funds into outside investments. The government has, therefore, committed itself to the breaking down of the long-established state monopoly, which will also ultimately help boost domestic savings.
The sector consists of 12 insurance companies, of which four are state-owned, namely Misr Insurance, Al-Chark Insurance, National Insurance, which accounts for 90 per cent of all life and 75 per cent of non-life insurance, and the Egypt Reinsurance Company. At present, six private companies and two insurance joint ventures are operating in the market. Recently, the US-based Marsh and McLennan have opened a representative office in Egypt, as have Scotch Life and BUPA for medical insurance, in order to gain a foothold until the market is sufficiently liberalised to support direct operation.
The legal framework under which these insurance companies operate has also been subject to a number of changes over the years to comply with the need for further liberalisation. Law No 91 of 1995 liberalised the structure of the insurance market, liberalised prices and tariffs and consolidated the role of the Egyptian Insurance Supervisory Authority (EISA) in the market.
The government has continued to expand the role of the EISA, now the highest supervisory board responsible for regulation. In consultation with the Supreme Council of Insurance, EISA sets market entry barriers, determines which companies are permitted to enter the market, monitors reserve adequacy and conducts on-site audits and year-end assessment of loss reserves.
The People's Assembly later passed Law No 156 of 1998, that allows 100 per cent foreign ownership of insurance companies and permits non-Egyptians to hold top management positions.
It became mandatory that the capital for the establishment of an insurance company be LE30 million, with at least half to be paid upon foundation. Another condition was that life-insurance companies be separate from non-life insurance ones, such as those covering property and liability. This meant that should the latter companies wish to handle life-insurance operations, they would be obliged to set up new companies, each with a capital of at least LE30 million.
Public and private sector companies had to raise their established capital of LE2 million, which was the required capital before the new law, to LE30 million. The law gave these companies a five-year grace period to adjust their positions.
We believe, however, that the capital required for establishing an insurance company should be increased. If foreign capital is to be encouraged to enter the Egyptian insurance market, it should be the type that will come to stay, not the small capital seeking quick profits and then disappearing.
As for re-insurers, they provide much-needed expertise to Egyptian insurers, particularly on large commercial risk. The dominant non-Egyptian re-insurers are Swiss Re-insurance and Munich Re-insurance, both of which enjoy long-term relationships with Egyptian companies. The Egyptian Re-insurance Company is the market's only domestic re-insurer and enjoys a compulsory cession of business from the country's direct companies. A recent ministerial decree, however, mandates the gradual elimination, by 2003, of this compulsory requirement obligating insurance companies to re-insure 30 per cent of their business operations.
At the end of the 1997/98 parliamentary session, the People's Assembly decided to start the privatisation of public banks and insurance companies. Law No 156 of 1998 allowed the private sector to own shares in the capitals of insurance and re-insurance companies that are entirely owned by the government. In such cases, the companies would have to comply with the joint stock companies Law No 159 of 1981 and the Capital Market Law No 95 of 1992. The prime minister's hold on the insurance sector has been tightened by the stipulation that he assign someone to represent the government's share in the Public Committee (after consulting the minister of economy) and on the company's board of directors of which the government stays a member. According to Law No 156, as soon as an individual purchases one share of a public sector insurance or reinsurance company, it legally becomes a private sector company.
The government has pledged to restructure the sector through legislative reform and the introduction of foreign expertise to modernise the industry's procedures and mechanisms.
The writer, a professor of civil law at Alexandria University, is former chairman of Al-Chark Insurance Company.
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