Following Morocco’s approval of a Law in August 2019 to facilitate the introduction of Takaful products in the Kingdom’s growing insurance market, Egypt is the latest country to introduce a Comprehensive Unified Insurance Law, which consolidates four separate previous laws. At the time of writing, the law was awaiting final parliamentary ratification.
According to Mohammed Omran, Chairman of the Financial Regulatory Authority (FRA), the Law is part of a Five-Year Plan (2018-22) to forge a Capital Market Master Plan for Egypt; development of the Non-Banking Financial Sector (especially the insurance industry for which, according to Omran, there is huge potential given the very low market penetration); and to help the Government of Prime Minister Mostafa Madbouly achieve its stated policy in financial inclusion, especially through microinsurance.
According to FRA data, Egyptian insurance/Takaful operators issued microinsurance policies in H1 2019 totalling EGP 281.9m (US$17.3m), for which EGP 1.4m in premiums were collected from 2,049 policyholders. However, Egypt has a very low insurance penetration rate of 1 %, partly due to cultural reasons and government and regulatory policy inertia and legislative fragmentation of matters relating to insurance.
The new Law encompasses inter alia conventional insurance, Takaful (Islamic mutual insurance), agri-insurance, a universal health insurance system etc. and adopts a risk-based supervision of the industry complete with international best practice in recapitalisation, corporate governance, solvency standards, dispute resolution and digitisation, including cashless payment of premiums online and through mobile telephony.
In some respects, the new Law is still “a work in progress’ given the number of current and pending add-ons as both the regulators and the market come to term with its provisions. As such its full implementation and impact will take time to work through. In September 2019, for instance, the Egyptian Ministry of Health rolled out its pilot national health insurance scheme in Port Said, with the aim of extending the scheme to all the governorates in the country by 2032. Similarly, the Ministry of Education is working on a roll out of education insurance for both secular and Islamic educational institutions and their students.
The pick-up of insurance in Africa, especially Egypt and Nigeria, stressed Mahesh Mistry, Senior Director of Analytics at AM Best, the insurance market rating agency, at the recent International Takaful Summit in London, is quite important, given its low base and growth potential.
Nigeria is leading the way with authorizing four Takaful companies. Two new Takaful companies, Cornerstone Takaful Insurance and Salam Takaful Insurance will soon begin operations in Nigeria, following approval from the National Insurance Commission (NAICOM). Cornerstone Takaful Insurance and Salam Takaful Insurance are licensed as composite Takaful operators to transact both family (life) and general (motor, fire) Takaful businesses in Nigeria.
NAICOM has already approved licenses for Noor Takaful, a subsidiary of Dubai-based Noor Bank Group, and Jaiz Takaful, a subsidiary of Jaiz Bank, Nigeria’s first non-interest (Islamic) bank.
In South Africa, Canada’s Bryte Insurance Company Limited (BICL), a subsidiary of Toronto-based Fairfax Financial Holdings Group in Canada and the sole Takaful operator in South Africa, has launched a small but thriving separate Takaful division in Johannesburg with the aim of establishing a dedicated independent Takaful company as a subsidiary of Bryte with its own separate board, capital and Takaful rulebook.
According to BICL’s Sedick Isaacs, Head of Business Support Services, the Takaful uptake especially by individual Muslims and Muslim-owned businesses has been encouraging in 2019 with some R300 million in contributions in a space of just three years. Isaac’s short-term target is to underwrite R500 million of Takaful business “to make it sustainable.”
Bryte Takaful has also entered the neighbouring Botswana, where BICL also has a subsidiary. In addition, Bryte Takaful recently also launched a trade credit Takaful product, which is getting growing attention from SMEs and corporates.
But it is in Egypt, where insurance is one of the most important non-banking financial activities, albeit its contribution to GDP reached 0.91% in 2018 compared to 0.9% in 2017. According to FRA Chairman, Mohammed Omran, “during 2018, the growth rate of insurance premiums was 23.4 percent compared to 2017. The number of companies operating in this sector is 37 companies. The total premiums amounted to EGP30 billion at end June 2018 compared to EGP24 billion for the same period in 2017. On the other hand, insurance companies paid total claims of EGP15.4 billion compared to EGP12.9 billion for the same period. Net investments of insurance companies increased by 16 per cent for the same period to EGP99.4 billion underlining the importance of the sector to the economy.
Three key provisions of the Law are the new capital requirements for insurance operators; the promotion of Takaful; and mandatory classes of insurance. A major issue for all insurance firms is capital and the new Law proposes an EGP150 million minimum capital for life and general insurance/Takaful operators, which is more than double the existing requirement of EGP60m. The biggest leap is for re-insurers, where a minimum limit is set at EGP1 billion compared to the previous limit of a mere EGP60 million.
The mandatory classes for insurance include inter alia professional liability insurance, education services, electronic risk in non-banking financial institutions, motor insurance and even “houses of worship (mosques and churches) and their users.”
The standout feature of the new Law is Takaful. Egypt has been a pioneer of the contemporary Takaful industry, with the first policy written in 1964. However, as Omar Gouda, Managing Director of Cairo-headquartered Africa ReTakaful, explained at the recent Takaful Summit in London, “the proliferation of Takaful has been late and slow. The authorities have not done much to assist its growth. There is low insurance penetration in most markets and many jurisdictions simply do not have a Takaful regulatory framework in place. We are revisiting the proposition and there have been some encouraging developments in Egypt, Nigeria and Morocco”.
The FRA in its latest data stressed that Takaful contributions collected by Egyptian Takaful operators increased by 141 % year-on-year at end H1 2019, reaching EGP4.6bn ($281m) from EGP1.9bn during the same period last year. This was the largest single increase in an insurance market segment by far in Egypt in 2019.
However, total insurance market contributions (conventional and Takaful) amounted to EGP27.8bn for the same period – an increase of 34.8 %. Takaful today accounts for just under 17 % of contributions in H1 2019 compared with about 10 % in H1 2018. According to the FRA, benefits and claims paid by Takaful operators amounted to EGP666.5m in H1 2019, compared to EGP439.6m H1 2018.
The FRA recognizes that the local Takaful industry needs handholding to get it on a more secure footing. But it has adopted a carrot and stick approach. On the one hand, the Authority, after meeting Takaful firm executives in September, gave Takaful operators an extra six months “to adjust to the new rules until 24 February 2020, provided that Takaful companies committed to submit to the Authority a plan of action, that includes a timetable and measures taken to comply with the new regulations, by 30 September 2019.”
The new Law prohibits the merger of a Takaful insurance company with a conventional insurance company. Mergers are only possible between insurance operators in the same category of business. A conventional insurer can merge with a Takaful firm only after it ‘converts’ into Takaful operator before the merger, and this would be subject to regulatory approval.
The Law also states that Takaful operators have to reinsure their risk with Retakaful companies, but the FRA is allowing Takaful operators to use conventional reinsurers while there is a lack of capacity in Retakaful companies, subject to its final approval.
The above moves are to pre-empt the co-mingling of conventional insurance funds with that of Takaful and to give Shariah-compliance certainty and comfort to those policyholders who choose to opt for Takaful and to the market in general.