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Egypt Insurance Report Q4 2010
Business Monitor International, Oct 2010, Pages: 74
The Egypt Insurance Report provides industry professionals and strategists, corporate analysts, insurance associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Egypt's insurance industry.
On paper, Egypt’s insurance market is one of the most promising in the Middle East. By virtually all measures, it is underdeveloped. However, and in complete contrast to the nearby Gulf Co-operation Council (GCC) countries, which have far higher per capita incomes than Egypt and which are mostly easier places in which to do business, there is already a significant life sector. The prospects for the economy, which was largely isolated from the impact of the global financial crisis, are favourable. The market is open to foreign competition, and the government is moving slowly towards financial liberalisation.
The Insurance Holding Company (IHC) is the largest player in the market by far. This is the stateowned enterprise through which the government maintains its stakes in Misr Insurance and National Insurance Company of Egypt (NICE). Misr Insurance includes the operations of the eponymous insurance company, Al-Chark Insurance and Egyptian Reinsurance, all of which were merged in 2007. Misr Insurance is a composite insurer, although IHC has been separating its life operations from its non-life operations in preparation for an initial public offering (IPO) of the life business sometime in 2010. NICE, which operates separately from Misr Insurance, focuses on health, pensions and other life products.
Delays in the privatisation of Banque du Caire following the breakdown in negotiations between the government and the National Bank of Greece in 2008 provide a reminder that in Egypt a general statement of official intent to undertake an IPO does not necessarily mean that a deal will take place. According to the Egyptian insurance regulator, total premiums in the year to June 30 2008 were EGP9,943mn. Total premiums written by IHC’s companies amounted to EGP3,905mn, or about 40% of this. However, IHC’s companies’ investment assets account for about 75% of those of the entire insurance sector.
Determining a value for those assets that is both reasonable from the point of view of the government and potential buyers of Misr Insurance’s life operations (or, indeed, anything else that IHC seeks to sell) is one of the major challenges. IHC’s management has indicated that it is in the process of transforming the insurance companies’ real estate assets into a stand-alone real estate ownership/development/management operation. Given the generally favourable performance of Egypt’s economy over recent years and the massive developments that are underway to the east and west of Cairo especially, but also in other parts of Egypt, BMI strongly suspects that the property holdings of IHC’s insurers are latent assets that are undervalued.
The enlargement of Misr Insurance, or, from the point of view of IHC, the combination of an enlarged Misr Insurance with NICE, has undoubtedly produced one of the largest indigenous insurance companies in the Middle East. Furthermore, and in contrast to Tawuniya in Saudi Arabia or Bimeh Iran, Misr Insurance and IHC are truly composite operations. However, even the sale of all of IHC, as opposed to the life operations of Misr Insurance, would not be a particularly large transaction by international standards. We have not seen the latest premium figures for IHC, but assume that they were somewhere near US$800mn in the year to June 30 2009 (assuming a 10% rise over the premiums for the year to June 2008). Press reports indicate that ‘realised’ profits were EGP972mn (US$172mn) in the year to June 2009, while total assets fell slightly to EGP22,900mn (US$4,190mn). According to an article commissioned by the American Chamber of Commerce (AmCham) in Egypt, IHC had 13,000 staff.
If these figures are correct, IHC has slightly more than half the staff of the AIA business which AIG sought to sell to Prudential plc at the beginning of March 2010 in one of the largest corporate deals of all time. However, AIA’s total weighted premium income, from 20mn customers in 15 national markets across Asia Pacific, was US$11,600mn in the year to November 2009. AIA’s profits before and after tax were US$2,274mn and US$1,437mn respectively. Its total assets were US$90,659mn.
In other words, we suspect that labour productivity may be an issue for IHC – and a challenge that will not necessarily be faced by foreign competitors, who will almost certainly have access to capital at a lower cost than IHC’s companies, which are looking to develop their businesses in Egypt organically. In this report, we continue to provide a breakdown of the insurance sector by line from the point of view of the regulator or the trade association. In Egypt group life products accounted for about one-quarter of overall life premiums in 2007/08. In the non-life segment comprehensive motor insurance (presumably compulsory motor third party liability, or CMTPL) was the largest line, accounting for about one-fifth of gross written premiums. Other major lines, accounting for over one-10th of non-life premiums each, included oil, fire, other motor insurance and accident insurance.
At the time of writing, in September 2010, we have been able to ensure that the report includes actual data for 2009. We have also generally been able to use data that has been published during 2010 to adjust our forecasts for the year as a whole and have extended forecasts to 2014. In the year to June 30 2009, total premiums in Egypt came to EGP10,700mn. This includes non-life premiums of EGP4,400mn and life premiums of EGP6,300mn. In the year to June 30, 2014, the corresponding figures should be EBP20,233mn, EGP8,863mn and EBP11,370mn.
In terms of the key drivers that underpin our forecasts, we are looking for non-life penetration to rise from 0.42% of GDP in 2008/09 to 0.55% in 2014. We are looking for life density to rise from US$15 per capita to US$29 per capita. BMI’s insurance industry Business Environment Rating for Egypt is 46.5.
Issues To Watch
The Privatisation Of Misr Insurance’s Life Operations Through An IPO
The process would likely add to the overall transparency of Egypt’s insurance sector, whether or not a deal actually takes place. The latest official indications are that the non-life operations of Misr Insurance and NICE are unlikely to be privatised anytime soon.
Foreign Groups In Egypt
Multinationals present include MetLife (following its purchase of ALICO from AIG in March 2010, Allianz and ACE). Crédit Agricole and Etiqa (from Malaysia) have applied for licences. Given that Egypt appears set to achieve steady, double-digit growth in premiums over the next five years, and is home to both non-life and life segments that have moved beyond embryonic levels of development, it is possible that additional companies will look to enter the market.
Islamic Finance
Egypt’s regulators and financial institutions have been less active in promoting Islamic banking and takaful than have their counterparts in Bahrain and Malaysia. Nevertheless, takaful may play a substantially greater part in the overall development of Egypt’s insurance sector than it has to date.
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