By Mahmoud Shinaishin, Mohamed Azab and Fahd Omran
Egypt has witnessed widespread political unrest for the past three years, but Basel El Hini, vice president of the board of directors of Misr Insurance Holding Company (MIHC), says that the insurance sector has been a big winner in these difficult circumstances.
In an interview with Al Borsa, El Hini said the Egyptian insurance sector has been growing faster than the wider economy, in spite of an increase in payments on claims during the past few years owing to the unrest. The sector is expected to maintain its strong growth in the coming period, in spite of weak economy because it is still new and the market unsaturated. The sector would even be one of the drivers of economic growth when recovery begins, he said.
Insurance companies have benefited enormously from the high interest rate on government debt, in which they have invested a large portion of their holdings.
Although revenue from government bonds has significantly decreased during the past two months, El Hini said this would not cause large problems for the companies. Interest rates on government bonds have declined between three and four percentage points, and the return on bank notes has similarly decreased by two percentage points.
El Hini said while banks and insurance companies have benefited in previous years from the government’s crises, and have reaped major gains by investing in its debt, this form of success was not sustainable.
MIHC had begun bolstering its income from investments other than interest-bearing ones but the recent political unrest interfered with this, he said.
The company will focus in the coming period on direct investment and work with the government and public sector companies, and with the private sector as well, to enter into partnerships for profitable projects. As part of these plans, MIHC is preparing to accept bids to choose a real estate developer in order to develop a piece of land it owns in Gezirat Bodran on the Nile Corniche. The project will include creating a touristic and service area. The preliminary cost estimate for the project ranges from EGP 600 million to 800 million.
The company is also currently negotiating with the Ministry of Investment to help promote the large projects that the ministry undertakes.
El Hini added that the project comes as the company turns towards the utilising of the assets of Misr Real Estate Assets (MREA), one of MIHC’s subsidiaries. The company will be setting up one of its administrative projects on another piece of land owned by MREA in the Qasr el-Nil area. MIHC aims to cooperate with the Ministry of Investment to maximise MREA’s investments in cooperation with internal and external real estate developers, and the company’s activities will not be limited to merely getting rents and selling residential units and malls.
He spoke of to the opportunities that await the insurance sector in Egypt, indicating that MIHC spares no effort in developing the insurance market in cooperation with the sector’s important actors, foremost among them the Egyptian Financial Supervisory Authority (EFSA) and the Insurance Federation of Egypt (IFE).
Misr General Insurance (MGI) and Misr Life Insurance (MLI), both owned by MIHC, took in more revenue from premiums and made more payments on claims during recent months, which will shore up their credibility in the market. There are negotiations between MIHC’s insurance subsidiaries and the Ministry of Investment to support the participation of MGI and MLI in the the major projects the ministry proposes.
According to El Hini, financial statements for the 2012/2013 fiscal year are much better than those from the previous year, especially in terms of premium payments and payments on claims made. These gains come in spite of the fact that an important part of the company’s assets are not under its management, and some of them don’t generate any profits.
El Hini requested some legal remedy to allow the company to take advantage of its historic assets, which do not generate revenue. The law prohibits their sale, and MIHC has to pay for expenses related to their maintenance. MIHC’s shares in other companies on behalf of the government make up about 20% of its investment portfolio.
MIHC’s consolidated financial position is EGP 30 billion and its total investments are EGP 28 billion. It owns MREA and other subsidiary insurance companies. The company’s investments rose from EGP 26.9 billion in the 2010/2011 fiscal year to EGP 27.9 billion in the next, a 4% growth rate. And the net rate of return on its investments was EGP 2.5 billion at the end of June 2013, compared to EGP 2.3 billion in the previous year, a growth rate of 9.3%. The rate of return on investments rose from 8.6% to 9.1% in the past two years.
MIHC has also made great strides in its quest to establish a company to provide Takaful insurance, which meets the requirements of Islamic law. It has begun negotiations with potential partners from East Asia with experience in Takaful, in addition to one of the international development banks. El Hini said that the participation of companies that bring such a great deal of experience in Takaful management will bring something new to the Egyptian market.
According to El Hini, tying the development of Takaful insurance to the rise of Islamists to power was a mistake. The companies that did so have been reluctant to expand these services after the Muslim Brotherhood’s departure from government. He pointed out that this sector was enjoying high rates of growth even before the Islamists were in government, and significant growth can still be achieved, owing to the personal preferences of customers and their religious strictures.
The company has also been looking into investing in the establishment of a company to work in the financial leasing sector. This is part of the Government’s efforts to invest in the field of financial intermediation.
The company is also considering entering the loan market and contributing to joint loans as part of a strategy of expansion and diversification of its investment portfolio. Insurance companies had the sort of long-term funds and savings that the financial market in Egypt lacks. The banking sector, which is currently taking on some significant projects, needed long-term funding for projects like electrical and infrastructure development. El Hini suggested that the MIHC may move in this direction as the market conditions improve.
El Hini spoke of the effect of the reduced interest rates for banks on MIHC’s investments. Insurance company investments are regulated by Law No. 10, passed in 1981, which sets the maximum and minimum limits for investments. He explained that the companies are making the same profits that they earn from investment in government debt although they are more affected by the degree of economic stability. He denied that MIHC is looking to limit its investments in government bonds after the drop in their interest rates, saying that the company is committed to abiding by the regulations of Law No. 10. He indicated that the current insurance legislation, as stipulated in Law No. 10 and Law No. 118 from 2008, is sufficient to support the sector’s development and to govern relations between the various companies.
The public insurance companies had monopolized much of the market until the private sector entered it. The public sector is represented by MIHC and its subsidiaries, including MLI, MREA, and Misr Property Insurance. It was able to consolidate its position in the market after its restructuring.