The insurance industry in Egypt has been challenged by inflation and currency problems but things are looking better. Middle East Insurance Review spoke to Orient Takaful Insurance’s Mr Mohamed Abdel Rassoul about the market and upcoming regulations.
Growth in the insurance market is expected to slow in 2024 amid economic challenges including inflation and exchange rates. This has made the industry evaluate risk and pricing due to inflation.
“For the overall economy, we have had some challenges during the last two or three years following devaluation (of the currency),” said Orient Takaful Insurance managing director Mohamed Abdel Rassoul speaking to Middle East Insurance Review.
The economy was also impacted by global inflation following Russia president Vladimir Putin’s invasion of Ukraine and the COVID-19 pandemic.
“The main challenge for the market at this time was mainly due to the scarcity of foreign currency. Egypt is a big importer of commodities and tourism was affected. Global inflation - the price of commodities and products has increased. It was really challenging for the Egyptian economy,” he said.
For insurers, the main challenge they faced from Egypt’s financial crisis was inflation and the scarcity of foreign currency.
“I’ve asked the clients to reevaluate the assets. And given that they were suffering economically in their main business, it was bit challenging for clients to pay more money due to devaluation of assets.
“One of the main challenges that we were facing was that the banks were not allowing foreign currency for insurance companies to transfer to the reinsurers.”
We asked Mr Abdel Rassoul how the insurer managed to overcome the problem.
“Cash management and foreign currency management. It was really hard. However, we have succeeded to pass this period and it’s not just us but the entire market that has succeeded to pass this hard time. Things got better three months ago due to deals and investments coming mainly from the GCC,” he said.
Liberation of the pound
The insurance industry is expecting gains from the Central Bank of Egypt’s (CBE) move to liberalise the Egyptian pound and raise major interest rates by 600 basis points. The goal is to combat high inflation and attract foreign investments.
The measures are part of a deal with the International Monetary Fund (IMF) to increase its bailout loan to Egypt from $3bn to $8bn.
The finalisation of IMF’s bailout loan in March 2024, the Extended Fund Facility for Egypt, that approved an augmentation of the original program by about $5bn, allowing the authorities to draw the equivalent of about $820m.
“Banks are now giving foreign currency for insurance companies to transfer to reinsurers. The importers are back getting foreign currency from the bank for importing some goods. Direct foreign investment is back but not like before. I’m not saying that we have already passed all the challenges but things are getting much better,” said Mr Abdel Rassoul.
Regulatory support
The current financial year ending 30 June 2024 (FY2024) is considered a pilot year for adopting IFRS17, which is set to be implemented at the beginning of FY2025.
“We are providing shadow accounts every quarter … I believe IFRS17 will be good for the market in providing more healthy competition.
“In terms of GWP, it is not a big factor. It’s (the impact on) insurance revenue. It will depend on how much you are retaining and, at the same time, you need to look at claim trends. Companies will give more attention to the loss ratio, expense ratio, discounting factor and reserving methodology … I think it will be reshaping the financials, which, in my opinion will have a positive effect on the overall market and on competition in the market,” he said.
Despite economic challenges, the Financial Regulatory Authority (FRA) has insisted with implementation so that the insurance industry will not be left behind. The FRA is also helping insurers with overcoming issues on pricing.
“They have started to provide guidance and requirements for the insurance companies in terms of pricing. They are not imposing pricing or tariffs but the regulator is asking insurance companies to provide studies based on historical data by each line of business to be tested and provided by external actuaries,” he said.
Unified insurance law
The plenary session of the House of Representatives approved on 20 May the draft unified insurance law. It is expected that the unified law will take effect after its publication in the Al-Waqa’i, Egypt’s official gazette.
The new unified insurance law has been worked on since 2018. It aims to modernise the insurance sector and increase transparency. The bill underwent several rounds of review and re-drafting.
In addition to consolidating scattered laws and regulations relating to insurance into one act and revisions to cater to developments in recent years in the insurance market, the unified law provides a framework for microinsurance and takaful.
The law also aims to strengthen insurance entities and create entities with greater financial solvency, as the minimum requirements for the capital of insurance companies were raised to EGP250m ($5.36m) from EGP60m at present.
The revised law will also provide for disaster insurance for such Nat CAT as earthquakes, floods, torrents, tsunamis and heavy rain.
The new legislation will make several insurance lines compulsory, including public liability insurance, medical liability and professional indemnity for professionals such as doctors, architects, lawyers and external auditors.
The new law also aims to develop the voluntary insurance system represented by private insurance funds, by tightening governance in this field, such as increasing the level of transparency and disclosure.
“I think the regulator is taking very good steps very good support to the market, although some may perceive that this is a burden, but in the end, this is for the sake for the market,” said Mr Abdel Rassoul. M