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Egypt Insurance Report Q1 2011
Business Monitor International, Jan 2011, Pages: 72
Business Monitor International's 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.
In some ways, Egypt’s insurance sector is more comparable with those of Central and Eastern 10-15 years ago than those of the nearby countries in the Middle East and North Africa today. There is already a significant life segment, even though compared to the Gulf Cooperation Council countries per capita incomes in Egypt are a lot lower and the country is in many ways a more challenging one in which to do business. By virtually any metric, the insurance sector as a whole is grossly underdeveloped. The medium term prospects for an economy that is largely isolated from global capital flows (and therefore the global financial crisis) are favourable. The market is open to foreign competition and there are general trends towards financial liberalisation and improved regulation and governance.
Perhaps most importantly, the market is dominated by the Insurance Holding Company (IHC). This is the state-owned enterprise through which the government maintains its stakes in Misr Insurance and the 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 in future. 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 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 sector regulator, the Egyptian Financial Supervisory Authority (EFSA), total premiums in the year to June 30 2008 were EGP9,943mn. Total premiums written by IHC’s companies amounted to EGP3,905mn, or nearly 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 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, in contrast to Tawuniya in Saudi Arabia or Bimeh Iran, Misr Insurance and IHC are truly composite operations. In this respect, the Egyptian companies are perhaps more analogous to the (former) state-owned giants in Central and Eastern Europe – such as PZU in Poland, Triglav in Slovenia or CROATIA Insurance. 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.
At the time of writing we have not seen the latest premium figures for IHC, but assume that they were somewhere near the US$800mn achieved 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).
Budgeted revenues (ie: premiums and investment income) for the year to June 30 2011 are forecast at EGP6,000mn (US$1,060mn). Budgeted net profit is expected to be EGP951mn (US$168mn), more or less in line with the net profit for the year to June 2010. According to an article commissioned by the American Chamber of Commerce in Egypt, IHC has 13,000 staff.
If these figures are correct, IHC has slightly more than half the staff of the AIA business that AIG sought to sell to Prudential plc at the beginning of March 2010 in one of the largest ever corporate deals. 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 a quarter of overall life premiums. In the non-life segment comprehensive motor insurance (presumably compulsory motor third party liability, CMTPL) was the largest line, accounting for about a fifth of gross written premiums. Other major lines, accounting for over a tenth of non-life premiums each, included oil, fire, other motor insurance and accident insurance.
At the time of writing, we have been able to ensure that the report includes actual data for the year to June 30 2009. Our numbers up to June 30 2010 take into account predictions made by the regulator in relation to the likely development of Egypt’s insurance sector over the course of the year. We estimate total premiums in the 12 months to the end of June 2010 of EGP12,871mn. This includes non-life premiums of EGP5,492mn and life premiums of EGP7,378mn. In the year to June 30 2015, the corresponding figures are forecast to be EGP25,025mn, EGP11,970mn and EGP13,055mn. In terms of the key drivers that underpin our forecasts, we expect non-life penetration to rise from 0.44% of GDP to 0.61% and for life penetration to grow from about US$17 per capita to US$33 per capita over the same period. BMI’s proprietary Insurance Business Environment Rating for Egypt is 47.0.
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 ALICO, 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 non-life and life segments that have moved beyond embryonic levels of development, it is possible that more 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 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 done to date.
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