Egypt Insurance Market 2016


Supervision and Control



Legislation  

Insurance Legislation 

The main pieces of legislation governing the conduct of insurance companies in Egypt are described below.

-     Law No 10 of 1981, Law on Insurance Supervision and Control in Egypt, governs insurance supervision and regulation.

-     Law No 156 of 1998 introduced important updates and clarifications, and set out a comprehensive legal framework for the insurance     sector; 100% ownership by foreign companies was permitted and the requirement that managing directors of state companies must be Egyptian was removed.

-     Presidential Decree No 246 of 6 September 2006 set up the Insurance Holding Company as the new parent of the three state-owned insurers and the state reinsurer, in order to merge these companies with a view to eventual privatization.

-     Decree No 72 of 2007 set up a motor guarantee fund to cover the victims of uninsured and hit-and-run vehicles.

-     Law No 118 of 2008, with regulations to it published in Decree No 245 of the same year, made significant changes to Law No 10 of 1981. These included increases in minimum capital requirements to EGP 60mn (USD 6.18mn) for both life and non-life companies, changes to the investment rules for all companies, minimum qualifications and registration details for individual and corporate insurance brokers (with the latter becoming authorised for the first time), and details of the scope of action of the supervisory authority with regard to risk-based supervision.

-     Law No 111 (Stamp Duty Law) of 1980, amended in 2006, established the regulations on stamp duty relating to insurance contracts.

-     Law No 10 of 2009 established the Egyptian Financial Supervisory Authority (EFSA) as the supervisory authority for all non-banking operations. EFSA controls and supervises insurance operations, capital markets, real estate, commodities, finance leasing and factoring and replaced the various individual regulators, including the Egyptian Insurance Supervisory Authority (EISA). EFSA also has jurisdiction over any new financial instruments or products which are not banking instruments. Accompanying regulations to Law No 10 were embodied in Presidential Decree No 192 of 2009.
 


Other recent legislative acts which affect the insurance sector are noted below.

-     Implementation of EFSA's new guidelines on the reinsurance of Egyptian companies (which was supposed to happen a year earlier) actually came into full effect from 1 January 2016.

-     EFSA Resolution No 122 of 2015 On the organisation of production and distribution of some insurance companies to policyholders through information systems and networks is the first step towards establishing a regulatory environment for online sales, and allows insurers to offer compulsory motor third party liability, travel and term life insurance online.

-     EFSA Resolution No 66 of 2015 On transactions with foreign reinsurance brokers sets out the requirements for their operation in Egypt.

-     EFSA Resolution No 14 of 2015 On the marketing of insurance products and services through banks licensed by the Central Bank of Egypt or through the National Postal Authority.


Statutory Tariffs

The only tariff in force is for compulsory motor third party liability cover.

Although Law No 10 of 1981, the Law on Insurance Supervision and Control in Egypt, stipulated the submission of rates and conditions with policy wordings as part of the insurance company registration process, the requirement to file rates appears never to have been enforced and is not currently a feature of the market.

The Insurance Federation of Egypt (IFE) may produce rating schedules from time to time, with varying degrees of acceptance by the market, but these are discretionary.

Compulsory Insurances

List of Compulsory Insurances Motor third party liability for bodily injury.         
-     Personal accident in respect of railway and metro passengers.
-     Aviation third party liabilities.
-     Decennial liability for architects and contractors.
-     Third party liability for operating lifts.
-     Professional indemnity for insurance and reinsurance intermediaries.
-     Liability for clinical trials.
-     Shipowners' liability against oil pollution (financial guarantee or insurance)
-     Workers' compensation (state scheme).

Projected Legislation

An important review of insurance legislation has been underway for some time and will result in a new insurance law once it has gone through the relevant legislative process.

The draft new insurance law had been returned to EFSA from the government for further consideration but could be approved by parliament in time for its introduction from 1 January 2017.

The new law would increase the minimum capital requirement of insurance companies to between EGP 120mn and EGP 150mn (USD 12.36mn and USD 15.45mn) (currently EGP 60mn (USD 6.18mn)).

Mono-line healthcare insurers would be required to have a minimum capital of EGP 10mn to EGP 15mn (USD 1.03mn to USD 1.54mn). Existing insurers would be allowed a transition period to comply with the new minimum capital requirements.

The law makes provision for entities to offer microfinance insurance and allows the setting up of mono-line healthcare insurers; it also includes provisions on takaful, third party administrators and on the creation of an insurance brokers' federation which corporate brokers must join.


Legislative Update

In November 2016 the Egyptian Financial Supervisory Authority (EFSA) issued Decision No 902 of 2016 which regulates microinsurance. The decision defines microinsurance as any insurance service aimed at low-income individuals to offer protection against certain hazards, including life insurance, personal accident, medical, motor and certain types of property insurance; policy limits, however, cannot exceed EGP 100,000 (USD 6,667).

Microinsurance policy wordings should be drawn up in simple, comprehensible language. Those offering such contracts must have a wide network to sell the insurances, collect premiums and pay claims. The issuance of policies is permitted electronically, and distribution is permitted through insurance companies and non-governmental organisations (NGOs) licensed to offer microfinance, in addition to Egypt Post and approved banks.

In September 2016 EFSA issued Decision No 805 of 2016 regulating websites of (re)insurance companies and intermediaries to ensure that information provided to clients is not incomplete, inaccurate or misleading. The decision requires (re)insurer and intermediary websites to include a company profile, as well as promotional or guidance material to introduce the services provided.

(Re)insurance companies and intermediaries are required to obtain prior approval from EFSA before the launch of a website. The request submitted to EFSA must include a copy of the content that will be published on the site. A company may only have one website. Those companies that already have a website must comply with the decision by 31 December 2016.

Also in September 2016 EFSA issued Decision Nos 729 and 730 regarding the issuance and distribution of electronic policies. For further information refer to the section headed E-commerce under Distribution Channels.  

Recent legislative acts which affect the insurance sector are noted below.
-       Implementation of EFSA's new guidelines on the reinsurance of Egyptian companies (which was supposed to happen a year earlier) actually came into full effect from 1 January 2016. Details can be found in the Reinsurance section of this report.
-       EFSA Resolution No 122 of 2015 On the organization of production and distribution of some insurance companies to policyholders through information systems and networks is the first step towards establishing a regulatory environment for online sales, and allows insurers to offer compulsory motor third party liability, travel and term life insurance online.
-       EFSA Resolution No 66 of 2015 On transactions with foreign reinsurance brokers sets out the requirements for their operation in Egypt.
-       EFSA Resolution No 14 of 2015 On the marketing of insurance products and services through banks licensed by the Central Bank of Egypt or through the National Postal Authority.

Non-Admitted Insurance Regulatory Position

Definition

Non-admitted insurance refers to the placing of insurance outside the regulatory system of the country in which the risk is located. A non-admitted insurance policy may be one that is issued abroad or one in which the risk(s) may be included in a global master policy by an insurer that is unauthorised in the country in which the risk is located. An authorised insurer is one that has been granted permission to do business in a country (or region) by the local supervisory authority. The text below describes the regulations that apply to non-admitted insurance for this country.  

Summary

Non-admitted insurance is not permitted in Egypt because the law provides that insurance must be purchased from locally authorised insurers with some exceptions.

Legislation

The legal provisions setting out the requirement for insurers to be authorised are contained in Article 20 of the Executive Regulations of the Insurance Supervision and Control Law. The text reads, "Following its foundation, the insurance or reinsurance company shall submit a request to the Authority for its registration and for authorising it to exercise its activity" (local unofficial translation).

The legal provisions setting out the requirement for property and liability risks to be insured with locally authorised companies are contained in Article 81 of Law No 10 of 1981.

The text reads, ''Article 81 - Individuals and bodies corporate may not make a contract of any direct insurance transactions relating to their properties or liabilities in Egypt unless the companies are subject to this Act. However, when it is impossible to make these contracts in Egypt, the Authority may authorize effecting the insurance with other than these companies according to the rules set by the board or directors of the Authority'' (official translation).

The law is silent on the freedom of buyers and/or intermediaries to purchase personal accident and private medical insurance outside the country.  

Insurance buyers cannot place their non-life business with non-admitted insurers abroad except for marine hull, cargo and liability, aviation risks and domestic transit risks if they are part of an international transit.

This relates to Egypt's commitment to the World Trade Organization. Although there is no obligation for import cargo to be insured locally, it is understood that if there is no local policy on imports they may be subject to a penalty of 2.5% of customs fees.

In addition, if cover for any risk is not available in the local market, permission may be sought from the supervisor to place the insurance abroad.

The law is silent on the freedom of buyers and/or intermediaries to purchase personal accident and private medical insurance outside the country.  

Fronting

Fronting, (where 100% of a risk is reinsured) is not permitted in Egypt, however, as local insurers have the right to determine how much they will retain on a given account, they may elect to keep only a very small retention in each risk.

Most companies in the market are prepared to issue local policies as part of multinational programmes for their own or other insurance groups.

Global programme wordings require the approval of the local supervisory authority, which is generally given without difficulty, although most companies issue a standard local wording, with any difference in conditions being covered under the global master programme.

Fronting is also common practice with specialist classes such as professional liability or, more recently, political violence, when local insurance companies will issue policies on terms agreed by overseas underwriters or reinsurers.

The supervisor approves special wordings in such cases and failure to submit may lead to a fine of several times the case premium.

Current fronting commission rates range from 5% to 10%.  

Types of Insurance Organisation
Foreign Ownership

Foreign ownership is only permitted through joint stock companies, co-operatives or mutual associations. Branches of foreign insurers are not allowed.

There is no limit on the ownership of Egyptian insurance companies by foreign investors, but no individual company or person can own more than 10% of an Egyptian insurer without the approval of the prime minister in consultation with the minister of finance. It is said that this is not difficult to obtain.  

Types of License

Article 27 of Law No 10 of 1981 (as amended) provides that companies may not transact both life and non-life insurance, as specified in Article 1 of the law as follows:

-      All types of life insurance, personal accident and long-term health insurances and capital redemption covers.
-      Fire, marine, air and inland transit, marine and aviation hull and liabilities, motor, engineering, oil and Miscellaneous insurances.

The emergence of takaful operators in recent years has prompted the introduction of a takaful licence. Licences are issued on an individual basis and no special licence is required to write inwards reinsurance.  

Capital Requirements

Law No 118 of 2008 amending Law No 10 of 1981, Law on Insurance Supervision and Control in Egypt stipulates that:

-      Capital must be adjusted in accordance with companies' risk profiles, with a period of two years established for all to adapt to the new position.
-      The minimum capital for non-life insurance companies is EGP 60mn (USD 6.18mn).  

New non-life companies are required to have an issued capital of at least EGP 60mn of which 50% must be paid-up on establishment and the balance within five years.

Companies must deposit with the Central Bank an amount of EGP 500,000 (USD 51,493) for each branch of insurance transacted, up to a maximum of EGP 3mn (USD 308,960). Registration fees of EGP 2,000 (USD 206) are also levied for each class of business written.

The same requirements apply to reinsurers.

The new law (the draft of which is currently under consideration) would increase the minimum capital requirement of insurance companies to between EGP 120mn and EGP 150mn (USD 12.36mn and USD 15.45mn) (currently EGP 60mn (USD 6.18mn)). Mono-line healthcare insurers would be required to have a minimum capital of EGP 10mn to EGP 15mn (USD 1.03mn to USD 1.54mn). Existing insurers would be allowed a transition period to comply with the new minimum capital requirements.  


Solvency Margins

For non-life business the assets of an insurer should exceed its liabilities by 20% of net premiums or 25% of net outstanding claims for the previous financial year, whichever is the greater, subject to a maximum deduction of 50% for reinsurance ceded.

Law No 118 of 2008 amending Law No 10 of 1981, Law on Insurance Supervision and Control in Egypt states that insurers' capital must be adjusted in accordance with their risk profiles, subject to the minimum of EGP 60mn (USD 6.18mn).  

There are no concrete plans to implement the EU's Solvency II model but EFSA has promoted the concept through various seminars and lectures.  


Reserve Requirements

The law requires that companies must establish gross unearned premium reserves equal to a minimum of 47% for compulsory motor, 25% for marine and aviation and 40% for all other classes, No special formula is set out for the calculation of claims provisions but companies must establish outstanding loss reserves equal to at least 100% of claims reported, on an individual claim basis, and are required in addition to have provisions for incurred but not reported claims (IBNR) together with a loss fluctuation provision using as a minimum a formula specified by the insurance supervisor and based on past experience. There is no provision for a catastrophe reserve.

Insurance and reinsurance companies are required to hold premium and loss reserve deposits in Egypt with a value at least equal to the value of their technical reserves. The same requirements apply to reinsurers.