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Islamic Insurance Leads Sector Growth Rates In Egypt Market
Published in Amwal Al Ghad on 27 - 05 - 2013

Bank Insurance Flourish Sector, Yet Unawareness Impedes
Lowered Credit Rating, Obstacle To Form Reinsurance Firms
Egypt Insurance Sector Strives To Renew Reinsurance Accords
New Act For Islamic Insurance Revives Egypt Market
Sukuks – New Investment Channel For Insurance Sector
The post-uprising political disputes and conflicts in Egypt have reversely affected all the country's various economic sectors. However, the Egyptian insurance sector has enjoyed both the negative and positive impact. The sector has been positively affected due to the growing awareness of the importance of insurance in order to face the multiple risks in Egypt driven by the state of lawlessness and riots. The shariah-compliant Takaful insurance firms seem to be the main beneficiary of the January 25 uprising in which the Islamist streams took over the reins of the country. Accordingly, all the laws, regulations and financing programs and investments will likely be in the Egyptian Takaful Co.'s best interests.
Amwal Al Ghad has met with leaders within the takaful insurance firms in Egypt in order to address the major obstacles to the insurance sector, notably the absence of having a certain legislation for the Takaful insurance in the country as the citizens are still puzzled and unable to differentiate between the shariah-complaint insurance and the commercial types.
The chairmen of the Takaful insurance firms said the Islamic bonds (sukuks) will be launching soon that would eventually be a pillar of the strength to the shariah-complaint insurance products within the upcoming period.
Adverse Effect:
Ahmed Arfeen, managing director of the Egyptian Takaful Insurance Company (Property), has emphasized the presence of the negative impact on the insurance sector during the last two years driven by the post-revolution incidents.
Arfeen has pointed out that the negative impact can be fairly represented in the reasonably higher rates of various accidents, such as cars, roads, or robbery driving the insurance firms to pay larger volumes of compensations.
He further said most of the compensation payments were for violent actions, riots and civil disorders as well as the labor strikes.
Another negative impact worth highlighting is the shrink in the current volume of investments in the Egyptian market which resulted in making the insurance sector lose one of its most highly vital sources of boosting its businesses, Arfeen added.
The lack of investments in market has reversely affected the future plans of the insurance sector in Egypt. The sector draws up its plans on accordance with the current volume of investments in the country.
Arfeen stated that the volume of the insurance premiums for the fiscal year of 2011 - 2012 reported its lowest levels in the last five years.
Adding to this point, Mohamed Abdel Gawad - managing director of Arab Orient Takaful Insurance Company – noted that besides the adverse effects of the post-revolution incidents, there are also positive effects represented in the growing insurance awareness which has in return backed the business results of the insurance firms.
Despite the lack of new investments and projects due to the haunting economic challenges, insurance premiums ensured moderate growth rates.
Abdel Latif Salam, managing director of Wethaq Takaful Insurance Company, said the sector's major challenge during the past two years was to renew the reinsurance agreements – which had limited impact during 2011.
Amid efforts to renew those agreements, the reinsurers started in 2012 to impose more complicated procedures and conditions, he added.
Salam explained that despite securing good business results, some of the Arab reinsurance companies have recently made exits from the Egyptian market due to the turbulent political and security situation besides the Egyptian pound's volatility against the foreign currencies.
Meanwhile, Ahmed Morsy - deputy managing director of the Egyptian Takaful Insurance Company (Property) – has referred to some challenges faced by the sector. Morsy has highlighted one of the most major challenges as the drop in the business results posted by the engineering sector due to the shrink in investments, which in return has reversely affected the engineering insurance sector.
He further noted that the political instability in addition to other factors associated with the general slowdown of Egypt's economy have negatively affected the marine transport insurance sector.
Morsy said the local market will likely be under a heavy burden within the upcoming period due to scarcity and the high prices of the products. Despite the downturn in sectors of engineering and marine insurance, the sector regained some balance powered by the booming growth rates in property section as a result of the growing insurance awareness.
Investment Channels:
Furthermore, Abdel Latif Salam said the insurance sector in Egypt enjoys plenty of investment channels divided into private investments achieved through the contributors' money from one side and by the policyholders' money from other side.
He noted that the insurance companies are currently keen to invest in fixed deposits as well as in treasury bills and bonds.
Salam also asserted that his company is targeting higher profitability and more investments so as to safeguard the money owned by investors and policyholders.
“Last year, Wethaq Takaful was planning to issue IPOs in the Egyptian Exchange, but such plan was canceled amid the continuous volatility haunted by the bourse due to deteriorating economic situation." Salam added
“Therefore, investing in the EGX has become a potential risk nowadays."
Salam stated that both takaful and the commercial insurance are not forbidden in Islam. They both tend to provide products for its customers. Yet, in takaful or Islamic insurance, this type is grounded in Islamic banking observing the rules and regulations of Islamic law. Accordingly, the regulations of Islamic law determines the insurance activities. Like Islamic banks, we will not find any Islamic teachings that prohibit dealing with the commercial banks.
Each takaful insurance firm has its own Islamic regulatory authority which determines the company's investment channels on the basis of the Islamic rules and regulations.
Then, El-Sayed Bayoumi - head of investment department at the Egyptian Takaful Insurance Company (Property) – highlighted that the Islamic investment channels are defined by a committee stick to the Islamic rules and regulations. He added that the takaful insurance can invest in the government debt instruments which are not prohibited in Islam and are not considered usury as it supports the state to boost more projects and investments which will be then have positive impact on the economy in general and on the insurance in particular.
Mr. Arfeen further explained that the takaful insurance firms' Shariah Supervisory Board is a definite plus in increasing investments. Yet, the takaful insurance sector is still plagued with perplexities as a result of relying on certain types of investment channels.
Back to Mr. Abdel Gawad from Arab Orient Takaful Insurance Company, he said both the Islamic insurance and the commercial type lack various investment channels,. For the commercial insurance, it has also humble investment channels driven by the economic woes.
He noted that both the commercial and the Islamic insurance types are an industry that depends on the type of product offered to the clients. The firms' role would then working on increasing the awareness so as to attract more clients.
Legislative Amendments:
Referring to the legislations needed by the takaful insurance sector, Mr. Abdel Latif Salam of Wethaq Takaful Insurance Company said the current time is not suitable to start issuing new legislations for the sector in the light of the political and economic instability. He further noted that Act No. 10-1981 alongside its amendments are still able to serve both takaful and commercial insurance.
The most effective mechanisms for promoting and marketing the takaful insurance lie in; transparency, integrity and mutual trust between the firm and the client, Salam added.
He also pointed out that Act No. 10/1981 stipulates the separation between the money owned by the contributors and by the policyholders on the basis of certain standards and budged for each of them and in accordance with the takaful insurance's principles.
On the other hand, Mr. Ahmed Morsy of the Egyptian Takaful Insurance Company (Property) disagreed by saying one of the most pressing challenges haunting the Islamic insurance is the lack of having certain legislations. Accordingly, there is necessity for making new amendments on the existing Act No. 10/1981 so as to take into consideration the shariah-complaint insurance working side by side with the commercial type.
He further stated that there is need to issue a new law which would stimulate the separation between the money owned by the contributors and by the policyholders, in order to avoid having more confusion and to guarantee and ensure the rights of both parties. The new act would then ease the tensions between the Egyptian Financial Supervisory Authority (EFSA) and insurance companies.
Adding again to this point, Mohamed Abdel Gawad from Arab Orient Takaful Insurance Company has called for establishing accounting standards represented in the good loan (Qard hassan). If the policyholders' fund is in default, the money financed by the good loan would be approved and injected in new investments, he said.
Abdel Gawad also demanded the EFSA to issue a law that would allow to include the good loan's returns to the policyholders fund.
Back to Mr. Arfeen, he said the Islamic insurance is still in its starting point and more efforts are needed to exert to work on widely spreading the shariah-complaint type. He explained that when the takaful insurance firms started to launch, they demanded having new documents different from those related to the commercial insurance. However, the EFSA specifies one policy for both the takaful and the commercial insurance. Now, it is pivotal to define a clear framework upon which the takaful firms would be founded alongside to allocate a special budget for those firms in accordance with certain measures.
Having put the current amendments on the Act No. 10/1981 cannot sound effective anymore, the EFSA shall reach more solutions that would contribute to increasing the awareness of the Islamic insurance, he added.
Mr. Arfeen further pointed out that 10 years ago, the EFSA studied having bigger market volume, and it has come out with the inception of a new product; the takaful insurance, but without the presence of regulations or measures.
Growth Rates:
As regards to the takaful insurance's share in the Egyptian market, Mr. Salam said since 2008, this type of insurance has made remarkable breakthroughs, achieving growth rates of 12% in 2012, compared to growth rates of 7% for the commercial insurance. For the commercial type, Mr. Salam claimed that it does not manage to become a deep-rooted activity in the market. This is because there are a certain segment of clients who would never prefer to seek any insurance services, referring to them as being prohibited or an usurious act. On the contrary, the takaful insurance can then attract that segment of clients.
"Of course, we cannot refer one of the insurance types as being usurious, while the other as religiously allowed. We cannot either categorize each type. Each type has its own conception as well as clients." Mr. Arfeen noted
"Numbers what it really matter in the world of economy, where religion or political affiliations have no place in."
He further stated that the Islamic insurance has a strong growing global presence. In 2006, the Islamic insurance posted growth rates in Africa of around US$ 255.8 million, while in 2010 they reached US$ 413.7 million, representing an increase of 3% in 4 years. In the GCC, the activity has acquired 41% of the total activities of the takaful insurance across the globe by the end of 2010.
All the seminar participants have agreed on the necessity of having a reinsurance company in Egypt. However, Mr. Abdel Gawad noted that currently it is not quite suitable to establish a reinsurance firm in Egypt, especially after the country's credit rating has been recently downgraded once again.
He said Egypt had previously a successful experience with the reinsurance sector backed by applying the tariffs, but currently the re-launch of reinsurance firms in the country is likely to fail due to the fluctuation and the increase in the insurance prices as well as in the volume of compensations.
Mr. Abdel Gawad further said he hoped that Egypt would restore its political and economic stability very soon so that the reinsurance firms would then re-launch to save the money paid to the foreign reinsurance firms.
Mr. Abdel Gawad further said he hopes that Egypt would restore its political and economic stability very soon so that the country would be able to re-establish reinsurance firms. Accordingly, Egypt would then save the money paid to the foreign reinsurance firms and avoid a heavy blow to the national economy. Egyptian insurance firms collect the insurance premiums from their clients in the Egyptian pound; while they paid them back to the reinsurers in the US dollar. Hence, foreign firms win and the nationals lose.
Bank Insurance:
On the activation of the bank insurance model, Mr. Abdel Gawad sees that the model is a new marketing channel, partnership between a bank and an insurance company whereby the latter is allowed to maintain smaller direct sales teams as their products are sold through the bank to bank customers by bank staff and employees as well.
The bank insurance law will have a positive impact on the sector represented in an increase in the growth rates of the premiums within the upcoming period, expected to reach up to 30%.
Mr. Salam added to this point by stressing the necessity to establish a direct and strong connection between the banks and the insurance firms.
It is a partnership between a bank and an insurance company whereby the insurance company uses the bank sales channel in order to sell insurance products, an arrangement in which a bank and an insurance company form a partnership so that the insurance company can sell its products to the bank's client base.
Doing marketing campaigns inside banks will contribute to having a stronger presence for of the insurance sector in the market, he noted.
He further stated that the second-time delay in the re-activation of the bank insurance has driven the recent decline in the insurance firms' volume of businesses. The bank insurance shall ensure dealing with a wide base of nation-wide clients.
He explained that the bank insurance is a partnership arrangement between the client, an insurance company and a bank whereby the insurance company is able to expand their customer base without having to expand their sales forces or pay commissions to insurance agents or brokers. To avoid the occurrence of conflict of interest, the Egyptian Central Bank (CBE) has set measures in which the insurance companies would be in the custody of the banks.
Mr. Arfeen interrupted by asserting the CBE prevents monopoly. Hence, all the firms shall have the chance to practice the bank insurance so that the market would not witness certain firms monopolizing the bank insurance activities. He referred to Allianz Egypt as a successful leading model that offers life insurance products through banks.
Moreover, Mr. Arfeen expects that doing the marketing campaigns for the insurance and the bank insurance sectors will be via websites which would in return contribute to increasing their presence in the Egyptian market.
He explained that firms will not sell their insurance policies through the internet. Instead, they shall provide detailed information about their policies. May be, the firms tends also to sell through the internet their personal accident insurance policies and other policies which do not need actuarial experts' review.
Mr. Salam added to this point by noting that most of the current global investments basically rely on various websites. He explained that the world-wide insurance sector is mostly being run through the internet and mobile besides the traditional direct way which is only adopted in Egypt. Therefore, Mr. Salam called for enabling to perform the insurance transactions through the mobile similar to the banks' mobile money transfer services which will be launched within the coming few days.
Credit Rating:
On giving ratings to the insurance firms in Egypt within the current period, Mr. Arfeen said it is quite impossible to give the credit rating to the insurance
Mr. Arfeen has ruled out the possibility to give credit ratings on the Egyptian insurance firms within the current phase amid the economic turbulence the country is going through since 2011. In addition, he said the reinsurers have imposed stricter conditions to renew their agreements with the Egyptian insurance companies. Also, the EFSA requires dealing with reinsurers of certain credit rating without taking to consideration their performance or business results.
He said downgrading Egypt's credit rating will reversely affect the credit ratings of the country's insurance firms as well as the renewal of reinsurance agreements. Mr. Arfeen also noted that the US dollar's rise would arouse multiple challenges while dealing with the reinsurers.
Price War:
Mr. Abdel Gawad highlighted that the insurance sector in Egypt is suffering from a price war erupted among the current insurance companies. Thus, adding more firms will be useless adding more pressure and causing harm to the sector driven by the current economic turbulence. But in case of economic stability and receiving big investments, more insurance firms are welcomed to enter the Egyptian market.
Moreover, Mr. Salam said there are no regulations which stipulate the insurance firms in Egypt to set unified prices.
Islamic Bonds (Sukuks):
El-Sayed Bayoumi from the Egyptian Takaful Insurance Company (Property), said the sukuks will bring considerable benefits to the Egyptian economy in general and to the Islamic insurance in particular. Sukuks will be the new insurance investment channel and be included in the state assets.
He said the sukuk bill will bring into force in forms of Sukuk Al-Ijara (Islamic lease) which will bring great benefits to the takaful insurance firms through issuing policies. He asserted that the takaful insurance firms in Egypt enjoys the financial and technical potentials required to insure the first five projects for the first phase of sukuk.

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