While Egypt’s insurance market is proving resilient in the face of the country’s challenging economic conditions, the continuing rise in interest rates and inflation means that insurers are finding it difficult to sustain growth rates in real terms.
Egypt’s insurers have shown themselves to be resilient in spite of challenging market conditions. Over the previous five years, the sector has grown by a compound annual rate of 17.5% per annum, as measured in net written premiums (NWP) denominated in Egyptian pounds, with 2022 marking the sixth consecutive year of growth, according to a report by AM Best.
In 2023, the rise in premium has been lower, due to a fall in the value of the Egyptian pound. Nevertheless, when the increase is measured in US dollars, growth has been strong at 16.7% per annum on a compound annual basis but will be muted in the short-term, following the devaluations in the Egyptian pound that took place in 2022 and 2023.
While the country’s GDP saw 6.6% growth in FY2022, the IMF forecasted a lower growth for FY2023 due to the high financing costs the country is facing, the continued backlog of imports, as well as a rationing of foreign currency following the depreciation of the currency.
Following the macroeconomic challenges in 2H2022 and 1H2023, lower business and consumer confidence may impact demand for insurance products and present challenges for insurance market growth, said the report.
Inflation continues to run high due to global supply chain challenges and the consequences of the conflict in Ukraine, surpassing 25% in calendar year 2022. Egypt relies heavily on wheat and oil imports.
Inflation also has a negative impact on insurance market growth as customer purchasing power is diminished. Additionally, rising prices of imported motor replacement parts push up claims payments. However, competitive pressures limit insurers’ ability to pass on higher costs to policyholders.
Reinsurance terms remain hard
The July renewals also saw insurers continue to face strict conditions from reinsurers in light of the high losses in the medical and credit branches.
The general manager in charge of reinsurance at an insurance company told Al Mal News that the increase in compensation paid in the credit insurance branch has led to tighter renewal terms cited by reinsurers.
He said that there are not many reinsurance companies worldwide specialising in credit insurance and that this line needs underwriters with high experience.
He pointed out that credit insurance has become one of the leading branches in the market in terms of premiums but the rate of losses has increased and it has become difficult to conclude credit reinsurance agreements on easier terms.
New regulations and standards
A new Insurance Act is expected to be approved, with a significant provision of the act being the introduction of higher minimum capital requirements for insurers based on the lines of business written. AM Best expects this to be positive for the overall capital adequacy of the sector, while smaller insurers who do not meet the requirements may face significant pressure to merge if they are unable to raise sufficient additional capital.
In addition to new legislation, insurance companies in Egypt are also adopting new accounting standards - IFRS9 and IFRS17. In contrast to other insurance markets, where regulators have allowed insurers to delay IFRS9 implementation to be aligned with IFRS17, the Financial Regulatory Authority has required Egypt’s insurers to implement IFRS9 ahead of IFRS17.
Currently, there is an expectation that the implementation of IFRS17 will be completed by 30 June 2024, following the implementation of IFRS9 in 2022. The two-year gap is seen as sufficient to allow Egypt’s insurers to deal with any implementation challenges that they might face.
The Insurance Federation of Egypt (IFE) has also reviewed insurance policies designed to cover potential risks that social media influencers may face in their work.
In its bulletin issued in July 2023, the IFE said that these policies cover the costs of legal payments and damages, breach of contract, breach of advertising regulations, infringement of intellectual property, and defamation, in addition to breach of privacy, according to a report by Amwal Alghad.
The bulletin also discussed the importance of media liability insurance which provides coverage from the risks that may arise from the contents that are in the media, including social media. It outlined insurance marketing through social media, including opportunities and challenges in it.
The IFE said insurers must designate a person to be responsible for their social media activities. The person in this role needs to understand social media, including its various forms and the type of messages insurers wish to share. Instructions should be provided on how often they monitor social media and how to respond to negative feedback professionally.
New microinsurance caps
The Egyptian Financial Regulatory Authority (FRA) has also revised the ceiling on the sum insured in microinsurance policies.
A new resolution (No 1289 of 2023) increases the cap on the sum insured in microinsurance policies to EGP220,000 ($7,130) from EGP200,000. The resolution has been published in the official gazette and took effect on 29 May 2023.
The FRA is supportive of microinsurance and, for the first time, has included provisions for this branch of business in the proposed new insurance law, that is currently before lawmakers. The new law will allow the incorporation of microinsurance companies.
In an accompanying move, the authority has raised the maximum funding limit for micro-enterprises by finance companies, credit entities and civil institutions. The 10% hike lifts the financing cap to EGP220,000.
Official statistics released by the Egyptian government reveal double-digit inflation rates in the country, caused largely by the depreciation of the Egyptian pound.
Answering Nat CAT
The IFE has also formed a committee to study the establishment of a natural disaster insurance pool in the Egyptian market, with the aim of providing insurance coverage for citizens against potential natural hazards and protecting state property.
IFE stated that comprehensive disaster risk management (DRM) is a dynamic process in which risk reduction must be seen as a common element. DRM involves adopting policies and strategies to reduce disaster risks, prevent new disaster risks, and manage residual risks, all of which contribute to lowering losses. The DRM strategy must cover different layers of risk by deploying different tools to respond to different types of disaster risk in line with the nature of the risk and available resources.
The IFE’s announcement coincided with the aftermath of a massive sandstorm that swept across Cairo on 1 June.
In a bulletin released on 3 June, the IFE said that the design of disaster risk insurance programmes and the type of support they provide depend on several factors: The type of insurance coverage provided; the scope of catastrophe risks; coverage of policyholders as well as the importance of the programme as a protection tool; the pricing structure or premiums payable under the programme; and the participation of the public sector. M