Six Egyptian insurers are preparing to increase their capital by between EGP138m ($7.8m) and EGP168m each during the current financial year ending 30 June 2018. The total capital of each of these companies will range between EGP502m and EGP670m after the increases.
The six insurers include two takaful companies and four commercial insurers. Also, five of them are property insurers and the remaining one is a life insurer, reported Al Mal News.
Capital increases are currently the hottest topic in the insurance industry with most players emphasising the need to boost capital periodically as a tool to obtaining a credit rating and increasing retention limits.
Mr Rimah Assaad Ahmed, managing director of Egyptian Life Takaful, said capital increases are related to the size of an insurer’s business and the risks it incurs, stressing solvency, especially after the liberalisation of the exchange rate and the devaluation of the Egyptian pound.
He stressed the need to increase the minimum capital to EGP150-200m so that insurers would be able to face risks and meet compensation payments. He also pointed out that the adequacy of the capital base is one of the criteria used in the global rating of insurance companies.
Mr Ahmed Fouad Salim, deputy chairman of Misr Life Insurance, commented on proposals to double the minimum capital of companies from the current level of EGP60m to EGP120m, in particular in view of the devaluation of the local currency and the liberalisation of the exchange rate last November.
He called on insurers to not only set aside technical allocations and legal financial reserves, but also to augment them periodically because they support financial solvency and the ability to fulfil obligations to customers, which is the most important role of an insurance company.
The capital of the insurers should not be less than EGP120m, after the Egyptian pound was floated and lost around 50% of its value vis-a-vis the greenback, said Mr Waleed Sobh, general manager at Egyptian Takaful Insurance. A large capital helps insurers expand business and increase the limits of retention, which contribute to increasing the volume of investments and profits.
He added that global ratings agencies assess the assets of the insurers and their financial solvency in US dollars, so that insurers which wish to obtain or renew credit ratings should raise capital in proportion to the large difference in the exchange rate to ensure a good credit rating or to maintain current classifications.
The Financial Regulatory Authority has been working since 2015 on revising the insurance law that would provide for the minimum capital of insurers to increase to EGP120-150m. The insurance law was last amended in 2008. M
EGP1 = $0.06