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Egyptian Insurance Market: History and Structure

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  • Division of Business Administration; International Academy for Engineering & Media Science - IAEMS, Egypt
Article

Egyptian Insurance Market: History and Structure

Abstract

The present research aims to an overview of Egyptian insurance market; the insurance industry started in the second half of the 19th Century through acting as agents for British and French companies, with few Egyptian companies; under Law No. 23 of 1957, insurance companies working in Egypt were nationalized; But from Issue Law No. 43 of 1975 the foreign capital back to Egyptian insurance companies; Today the Egyptian insurance market is regulated through Egyptian Financial Supervisory Authority (EFSA) under Law No. 10 of 1981 & Law No. 118 of 2008. The study found different between the structure of institutions insurance and their market share, the study found a higher number of insurance companies are Private Sector Companies and Private Insurance Funds, but the market share of Public Sector Companies and Government Insurance Fund more than the market share of Private Sector Companies and Private Insurance Funds and found the different fees (underwriting expenses) between Life & Properties Insurance in Egyptians companies.
Electronic copy available at: http://ssrn.com/abstract=2385329
- 0 -
Egyptian Insurance Market
History and Structure
Osama Wagdi
1
Financial Institutions Department
Faculty of Management,
Modern University for Technology and Information
(MTI)
Cairo, Egypt
2014
1
Corresponding Author: osamawagdi_ta@yahoo.com
Electronic copy available at: http://ssrn.com/abstract=2385329
- 1 -
Egyptian Insurance Market:
History and Structure
Osama Wagdi
Financial Institutions Department, Faculty of Management, Modern University for
Technology and Information (MTI) Cairo, Egypt
Abstract:
The present research aims to an overview of Egyptian insurance market; the
insurance industry started in the second half of the 19th Century through acting as
agents for British and French companies, with few Egyptian companies; under Law
No. 23 of 1957, insurance companies working in Egypt were nationalized; But from
Issue Law No. 43 of 1975 the foreign capital back to Egyptian insurance companies;
Today the Egyptian insurance market is regulated through Egyptian Financial
Supervisory Authority(EFSA)under Law No. 10 of 1981&Law No. 118 of 2008.
The study found different between the structure of institutions insurance and
their market share, the study found a higher number of insurance companies are
Private Sector Companies and Private Insurance Funds, but the market share of Public
Sector Companies and Government Insurance Fund more than the market share of
Private Sector Companies and Private Insurance Funds and found the different fees
(underwriting expenses) between Life & Properties Insurance in Egyptians
companies.
Key words:
Insurance, insurance sector, insurance market Structure, insurance companies'
performance, Life Insurance, Properties Insurance, Egypt.
Corresponding Author: osamawagdi_ta@yahoo.com
Introduction
Insurance companies play an
important role in the financial system
as both institutional investors and
providers of loans to various
industries; In addition, they are large
stockholders of many companies.
Thus, it is of great importance to
investigate the behavior and
performance of insurance companies.
In Egypt, The insurance
industry plays a vital role in supporting
the economy and growing national
investments. It provides financial
protection for individuals and projects
against different risks. Further, it is a
main channel for collecting and using
national savings in financing national
investments and development plans,
making available new job opportunities
and alleviating the impacts of inflation.
Optional private pension funds provide
complementary pension for
subscribers. Within this framework, the
insurance industry needs to invest its
resources in medium- and long-term
fields that go well with the nature of its
obligations, thus creating demand for
medium- and long-term finance. The
Egyptian insurance market is subject to
supervision and regulation per Law
No. 10 of 1981 and its amendments,
2
the last of which was Law No. 118 of
2008.
Research objectives
The main objective of the research is to
analyze Egyptian insurance market
Structure and insurance companies'
performance.
Research Methodology
The author used the survey method to
describe and analyze Egyptian
insurance market.
Data The author collected data from
Egyptian Financial Supervisory
Authority, Central Agency for Public
Mobilization and Statistic (Egypt) and
Egyptian insurance companies.
Literature Review
For the former, we found
many studies focus on Market structure
(Choi & Weiss 2005, 2008) (Fenn et.
al., 2008), Organizational form,
corporate governance (Brockett et al.,
2005) (Cummins & Rubio-Misas
2004) However , there are factors of
determinants of the performance of
insurance companies; has reached
many of the studies to output is the
relationship of ownership structure
with performance (McNamara MJ
& Rhee SG 1992) (Diacon SR &
O’Sullivan N. 1995); the relationships
of culture with corporate performance
(Gordon GG & Di Tomaso N. 1992);
the need for sound strategic
planning(Steinle & Eggers 1994); the
role of information systems in
providing competitive advantage
(Goldberg & Sifonis 1994); the
importance of development of
management teams and periodic
review of personnel performance (Van-
Bolderick,1992); the relevance of
appropriate career tracks for sales
personnel (Wellstead,1992); and the
impact of quality and productivity of
service on customer satisfaction
(Tanner S., 1994) (Vuorinen et.al,
1998) .
Review of Development of
Egyptian's Insurance Sector
The insurance industry started
in the second half of the 19th Century
through acting as agents for British and
French companies ; In 1900, the
National Insurance Company was
established as the first Egyptian
company ; in 1933, "Al-Sharq
Company" was formed; and in 1934,
"Misr for General Insurance".
Foreign insurance companies
began to set base in the market by
establishing branches and agencies
which totaled more than 130.
In the wake of the
nationalization movement under Law
No. 23 of 1957, insurance companies
working in Egypt were nationalized.
From that time until 1961, there were
14 Egyptian companies for insurance
and re-insurance.
Based on insurance decrees of
the year 1961 and merger decrees of
the year 1964, the number of insurance
companies in Egypt became four
companies fully owned by the State:
three companies for direct insurance
and one for re-insurance.
As a result of the dramatic
change in the Egyptian economic
policy after the 1973 war, Law No. 43
of 1975 was issued. It caused a huge
shift in the insurance industry in Egypt
by allowing inflow of foreign capital to
establish insurance companies in the
free zones.
By the end of the Seventies of
the Twentieth Century, private sector
participation began in the insurance
market. The Suez Canal Company for
Insurance was established in 1979, Al-
Mohandes, 1980, and Delta for
Insurance, 1981. With the continuation
of the economic development process,
private insurance companies working
in the market in the Nineties were nine:
3
four of them were public sector, three,
private sector, and two, in the free
zones. In the mid of the Nineties, and
in accordance with requirements of
economic reform policies and market
liberalization, Law No. 10 of 1981 was
amended to allow 49% of foreign
participation, which increased the
number of insurance companies to
twelve: 4 public sector, 6 private and
two free zone. Then, it was amended
per Law No. 156 of 1998 to allow
100% foreign participation. The
number of companies working in
Egypt became seventeen: 4 public
sector companies and 13 foreign
capital companies.
Finally, Law No.118/2008 that
enforced Insurance Companies that
merge between both insurance
activities , life and non-life insurance;
to detach them within 2 years from the
date of issuing the law and this period
can be extended but according to the
EFSA`s (Egyptian Financial
Supervisory Authority) approval, was
issued , consequently, the No. of
Public Enterprise Companies happened
to be 2 , one for life insurance and the
other is for non- life insurance,
meanwhile the no. of the other
insurance companies registered in the
EFSA turned to be 28 , so that the total
no of companies is to be 32 companies
; some are with Egyptian Capital, some
are with Foreign and some with
Common Capital ; But two Companies
has problems with the legal rules.
EFSA Main Insurance Duties
1- Protecting the rights of
policyholders, beneficiaries and
third parties.
2- Ensuring proper achievement
of economic and social targets
of insurance activities, and
maintaining national savings.
3- Ensuring integrity of financial
position of insurance
companies in the market,
coordinate and prevent
conflicts among them.
4- Contributing in developing
insurance awareness among the
public in Egypt.
5- Supporting and developing the
insurance market.
6- Elevating insurance careers and
effectively participating in the
provision of expertise.
Egyptian insurance market
structure:
The EFSA is assigned to
supervise and control the companies
operating in the Egyptian insurance
market, which are:
1) Insurance and Reinsurance Companies
A) Direct Insurance Companies
These companies are
specialized for issuing policies
(insurance coverage) for
properties, liabilities, persons,
fund accumulation practices
and settlement of
compensations that fall due
when risks occur.
B) Reinsurance Companies
These companies are
specialized for covering part of
the directly insured risks,
against commission.
2) Cooperative Insurance Associations
A cooperative insurance
association is an entity formed in
accordance with the general principles
of cooperation. It ensures that members
enjoy insurance system applied by and
between them.
3) Private Insurance Funds
It is a system applied by an
authority, company, syndicate or
association comprising of individuals
practicing the same profession,
involved in the same career or forming
social links. The fund grants members
insurance rights in the form of
financial benefits to be determined by
and between them.
4
4) Government Insurance Funds
These funds are assigned to
cover the risks that unusually
unacceptable by insurance companies
or the risks believed to be solely
covered by the Government.
5) Insurance Pools
Law permits insurers and reinsurers to
establish, among themselves, insurance
pools to manage an insurance branch
or certain insurance process.
The study explores the
Egyptian insurance companies
structure in Fig.1, The study found a
higher number of insurance companies
are Private Sector Companies
conducting property & liability
insurance
Fig.1
Egyptian insurance companies' structure
Source: Egyptian Financial Supervisory Authority (2010-
2011) annual report,
The same case in Insurance
Funds, we can see that in Fig.2
Fig.2
Egyptian insurance funds structure
Source: Egyptian Financial Supervisory Authority (2010-
2011) annual report,
The Fig.3 show the market
share in Egyptian insurance market
Fig.3
Egyptian insurance market share
Source: Egyptian Financial Supervisory Authority (2010-
2011) annual report,
But the market share of Public
Sector Companies and Government
Insurance Funds more than the market
share of Private Sector Companies and
Private Insurance Funds
In the table 1 show
Comparison fees (underwriting
expenses) between Life & Properties
Insurance Table 1
ANOVA Test
Source: SPSS output
32.632
1
32.632
.429
1977.246
26
76.048
2009.878
27
Between
Groups
Within
Groups
Total
F
Sum of
Squares
df
Mean
Square
F
ANOVA
5
Table 1 show the different fees
between Life & Properties Insurance in
Egyptians companies.
Conclusion
The study found different
between the structure of institutions
insurance and their market share, the
study found a higher number of
insurance companies are Private Sector
Companies and Private Insurance
Funds, but the market share of Public
Sector Companies and Government
Insurance Fund more than the market
share of Private Sector Companies and
Private Insurance Funds; and found the
different fees (underwriting expenses)
between Life & Properties Insurance in
Egyptians companies.
References
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... The insurance industry started in the second half of the 19 th century through acting as agents for British and French corporations, with few Egyptian corporations; under Law No. 23 of 1957, insurance corporations working in Egypt were nationalized. Today the Egyptian insurance market is regulated through "Financial Regulatory Authority" (FRA) under Law No. 10 of 1981 and Law No. 118 of 2008, see [39]. ...
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