REVITALISING the insurance sector is one of the key strategic goals of Economy Minister Youssef Boutros Ghali. He sees the expansion of the sector as an essential ingredient in increasing domestic savings, so that Egypt can sustain high rates of economic growth without running into serious balance of payments problems.

To this end he pushed through a law, in 1998, allowing 100 per cent foreign ownership of insurance companies, and he is now pressing ahead with plans to privatise the four state-owned giants that dominate the industry. However, progress has been slow, and Boutros Ghali's task has not been helped by the fact that many of the existing industry leaders are resistant to change. Total written premiums in Egypt are some úE 1,500 million ($440 million), a relatively paltry 0.5 per cent of gross domestic product (GDP). The government's ambition is to increase this to 4-6 percent of GDP, to bring Egypt into line with other countries at a similar stage of development.

For the foreign companies looking at the market, this makes investing in Egypt a highly attractive proposition. 'I feel it is an underdeveloped market in terms of volume and the variety and sophistication of the products available,' says Frank Wisner, a senior vice-president at American Insurance Group (AIG). 'There is substantial scope for foreign entry to increase insurance coverage and bring in new technology.'

AIG is already involved in Egypt, through its life insurance arm, Alico, which is a partner in Pharaonic American Life Insurance Company. The company has grown rapidly since its formation in the mid-1990s, and now reckons to have an 8 per cent share in the life market. AIG has now submitted an application to the Egyptian Insurance Supervisory Authority for a licence to set up a general insurance joint venture with the Orascom group, one of the country's leading industrial, services and trading conglomerates.

Wisner, who served as US ambassador in Cairo from 1986-91, recognises that established local insurance companies, which are mostly state-owned, are likely to have some reservations about the influx of foreign competitors. However, he insists that the expansion of the market that will result from new companies coming in should benefit all the participants. 'My experience of similar situations elsewhere in the world tells me that the entire market gains. Of course, it is not immediately obvious to everyone that competition is good.'

Local concerns

The Cairo press has featured a number of debates in recent weeks, in which the concerns about the impact of foreign competition have been evident. The business daily Al-Alam al-Yom on 14 June quoted a number of local insurance company chief executives as saying that the government should delay allowing foreign companies to set up new ventures. Misr Insurance Company chairman Mohamed el-Tayer, Delta Insurance Company chairman Fathi Youssef and National Insurance Company chairman Mohamed Abul-Yazeed all expressed the view that foreign companies should enter the market through taking stakes in existing companies as part of the privatisation process. The only dissenting view came from El-Mohandes Insurance Company chairman Samir Metwalli, who said foreign companies will bring in products not available in the market now, and in any case Egypt's membership of the World Trade Organisation (WTO) means that foreign firms must be able to operate freely from 2003, and it is up to local companies to make the proper

preparations.

The government's view in the debate was expressed by Ibrahim Morgan, a Cairo University professor advising the Economy Ministry on reforms to the insurance sector. The paper quoted him as saying: 'Closing the Egyptian market to foreign companies only benefits the Egyptian insurance companies, to the detriment of the state and people who are insured. It prevent the introduction of a new pattern and modern methods of insurance and lower prices and impinges on the extent of public acceptance of insurance, which leads in turn to lower levels of savings and investment.'

One company that has managed to break into the market is Legal & General of the UK. It started work on a joint venture project with Commercial International Bank (Egypt - CIB) in early 1998, and is now poised to start operations as Commercial International Life Insurance Company (CIL). The local Mansour & Magraby Group is part of the venture, and the International Finance Corporation will join soon.

Says Ian Viney, appointed managing director on 27 June, 'Although there are a number of large local players, the penetration of the market is very small by almost any international comparison. The average Egyptian is only spending approximately $2 per annum on life insurance protection and/or long-term savings products. This statistic alone emphasises the potential for growth which exists.' He says the company's savings products will be tailored to the needs of a growing middle class and the protection products will offer a wider range of choice and flexibility than is now available.

The other main foreign players are Germany's Allianz, which has just decided to increase its stake in Arab International Insurance to 35 per cent from 5 per cent, and Arab Insurance Group (Arig), which has taken majority control of Allied Investors for Insurance Company.

Fresh opportunities to invest in the sector are coming up with an offering of the 97 per cent state holding in Egyptian American Insurance Company, to be arranged by HSBC, and with the prospect of shares being offered some time in 2000 in the big four public sector companies. The government selected Merrill Lynch and Morgan Stanley in October 1998 for the job of evaluating the assets of the four companies - the former working on Misr Insurance and National Insurance and the latter on El-Chark for Insurance and Egypt Reinsurance. However, negotiations on final contracts with the two US investment banks have been protracted, and the schedule for starting the major part of the privatisation programme appears to have slipped. No explanation has been given for the delay.

Slow-going it may be, but the reform to the Egyptian insurance sector is moving forward, and has attracted the attention of international players. Indicative of this new global exposure was the decision of US ratings agency AM Best Company to analyse three Egyptian firms, accounting for 49 per cent of the country's total premiums. It gave El-Chark and National Insurance - both state-owned - ratings of A- (Excellent), and rated the privately-owned El-Mohandes Insurance Company B++ (Very Good). The agency said the strengths of the two public sector firms were their big distribution network and effective investment strategies. This was offset by the challenges posed by liberalisation and the increased activity of foreign firms. El- Mohandes was ranked lower because of its small capital base, the agency said.