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New Insurance Regulations: A New Pr

New Insurance Regulations: A New Prudential Framework for Companies
The “July Egypt Legal Update” covered the issuance of a major amendment to the Insurance Supervision Law (Law Number 10 of 1981 as amended by Law Number 118 of 2008) which reorganized the insurance brokerage market by introducing brokerage companies, provided EISA (Egyptian Insurance Supervision Authority) with additional regulatory powers, and reduced the bureaucratic burden on the conduct of insurance business while tightening prudential supervision over companies. Some of the provisions introduced in the law as amended stated the overall principles, leaving some of the operational details to be determined in the Executive Regulations, i.e. by decree from the Minister of Investment. Thus in response to the above, the Minister of Investment issued decree Number 245 of 2008 – published in the Egyptian Gazette on November 17th, 2008 – amending some provisions in the Executive Regulations of the Insurance Supervision Law.
The main provisions introduced in this amendment are the following:
  • The minimum capital requirement for an insurance or a re-insurance company has been increased from thirty to sixty million Egyptian Pounds (half of which must be paid-up upon establishment).
  • A key addition in the new rules is a provision that grants the regulator – EISA – the powers to require an insurance company to increase its capital if it is deemed to have an insufficient capital to meet its future obligations or to be compatible with its risk profile.
  • Another key departure in the rules is with respect to the provisions governing the investments made by insurance and re-insurance companies. The following is a summary of the rules in light of the amendments:
1. With Respect to Life and Capital Formation Insurance:
  • Minimum 25% in Government issued or guaranteed papers.
  • Maximum 20% in bonds (with certain limits on investment in a single issuer).
  • Maximum 20% (down from 25% prior to the amendment) in stocks and investment funds,with limits on a single issuer or fund equal to 5% of all invested monies in that category, 20% of the capital of the issuer, 20% of a fund’s capital, and 10% of the paid up capital of the insurance company.
  • Maximum 10% of the paid up capital of the insurance company to be invested in papers - whether debt or equity - by one issuer.
  • Maximum 30% in real estate investment (up from 20% prior to the amendment).
  • Loans guaranteed by insurance policies not to exceed 90% of their value at redemption.
  • Maximum 20% in mortgage guaranteed loans.
  • Maximum 50% in bank deposits and certificates of deposit.
  • Maximum 20% (up from 10%) in other investments approved by EISA.
2. With Respect to Property and Liability Insurance:
  • Minimum 20% in Government issued or guaranteed papers.
  • Maximum 15% in bonds (with certain limits on investment in a single issuer).
  • Maximum 25% in stocks and investment funds, with limits on a single issuer or fund equal to 5% of all invested monies in that category, 20% of the capital of the issuer, 20% of a fund’s capital, and 10% of the paid-up capital of the insurance company.
  • Maximum 10% of the paid up capital of the insurance company to be invested in papers – whether debt or equity – by one issuer.
  • Maximum 30% in real estate investment (up from 10% prior to the amendment).
  • Maximum 50% in bank deposits and certificates of deposit.
  • Maximum 20% (up from 10%) in other investments approved by EISA.
- The valuation of an insurance company assets – for the purposes of compliance with Article (38) of the law which requires that the company maintains a minimum capital adequacy – are to be based on Egyptian Accounting Standards, instead of previously being based on specific rules in the Executive Regulations. - Insurance companies are required to be members of the Union of Insurance Companies, instead of previously being given the option to be members. - The most important amendment introduced in the law in July of this year was the transition of the brokerage profession from being conducted by individuals to companies (See the July Egypt Legal Update). The new rules in the Executive Regulations spell out in detail the requirements for a company to be licensed as an insurance broker. The most important ones are: an economic feasibility study, a professional liability insurance, and a certificate determining the person in charge of effective management. - The amended Executive Regulations provide the regulator – EISA – with new powers to impose prudential measures on insurance companies, particularly with respect to capital adequacy and risk management, which EISA may issue by administrative decision from its own board. In addition, the new rules impose a greater duty of reporting by the insurance companies to EISA, and grant the latter the right to conduct onsite inspections to ensure that companies are in compliance with internal audit and risk management requirements. - An appeals committee is to be set up to review disputes involving brokers whether with EISA or insurance companies.
Conclusion
The new rules introduce a number of key useful provisions, especially with respect to the prudential supervision over insurance companies, and the guidelines for investing their assets. However, it is surprising that the investment rules move in favor of increasing the maximum permitted to invest in real estate, and reducing the maximum permitted in stocks and investment funds. As regards the powers granted to the regulator to impose new prudential requirements, especially with regard to risk management and capital adequacy and to require companies to increase their capital accordingly, these on the whole are important powers and they go a long way in putting EISA at par with the Central Bank of Egypt in terms of regulatory powers. However, one key difference is that the Central Bank’s powers were stated in the law and not in executive regulations. This is a significant weakness in the new rules, and this level of regulatory powers belongs to the Insurance Supervision Law and not to its Executive Regulations.
The “July Egypt Legal Update” covered the issuance of a major amendment to the Insurance Supervision Law (Law Number 10 of 1981 as amended by Law Number 118 of 2008) which reorganized the insurance brokerage market by introducing brokerage companies, provided EISA (Egyptian Insurance Supervision Authority) with additional regulatory powers, and reduced the bureaucratic burden on the conduct of insurance business while tightening prudential supervision over companies. Some of the provisions introduced in the law as amended stated the overall principles, leaving some of the operational details to be determined in the Executive Regulations, i.e. by decree from the Minister of Investment. Thus in response to the above, the Minister of Investment issued decree Number 245 of 2008 – published in the Egyptian Gazette on November 17th, 2008 – amending some provisions in the Executive Regulations of the Insurance Supervision Law.
The main provisions introduced in this amendment are the following:
  • The minimum capital requirement for an insurance or a re-insurance company has been increased from thirty to sixty million Egyptian Pounds (half of which must be paid-up upon establishment).
  • A key addition in the new rules is a provision that grants the regulator – EISA – the powers to require an insurance company to increase its capital if it is deemed to have an insufficient capital to meet its future obligations or to be compatible with its risk profile.
  • Another key departure in the rules is with respect to the provisions governing the investments made by insurance and re-insurance companies. The following is a summary of the rules in light of the amendments:
1. With Respect to Life and Capital Formation Insurance:
  • Minimum 25% in Government issued or guaranteed papers.
  • Maximum 20% in bonds (with certain limits on investment in a single issuer).
  • Maximum 20% (down from 25% prior to the amendment) in stocks and investment funds,with limits on a single issuer or fund equal to 5% of all invested monies in that category, 20% of the capital of the issuer, 20% of a fund’s capital, and 10% of the paid up capital of the insurance company.
  • Maximum 10% of the paid up capital of the insurance company to be invested in papers - whether debt or equity - by one issuer.
  • Maximum 30% in real estate investment (up from 20% prior to the amendment).
  • Loans guaranteed by insurance policies not to exceed 90% of their value at redemption.
  • Maximum 20% in mortgage guaranteed loans.
  • Maximum 50% in bank deposits and certificates of deposit.
  • Maximum 20% (up from 10%) in other investments approved by EISA.
2. With Respect to Property and Liability Insurance:
  • Minimum 20% in Government issued or guaranteed papers.
  • Maximum 15% in bonds (with certain limits on investment in a single issuer).
  • Maximum 25% in stocks and investment funds, with limits on a single issuer or fund equal to 5% of all invested monies in that category, 20% of the capital of the issuer, 20% of a fund’s capital, and 10% of the paid-up capital of the insurance company.
  • Maximum 10% of the paid up capital of the insurance company to be invested in papers – whether debt or equity – by one issuer.
  • Maximum 30% in real estate investment (up from 10% prior to the amendment).
  • Maximum 50% in bank deposits and certificates of deposit.
  • Maximum 20% (up from 10%) in other investments approved by EISA.
- The valuation of an insurance company assets – for the purposes of compliance with Article (38) of the law which requires that the company maintains a minimum capital adequacy – are to be based on Egyptian Accounting Standards, instead of previously being based on specific rules in the Executive Regulations. - Insurance companies are required to be members of the Union of Insurance Companies, instead of previously being given the option to be members. - The most important amendment introduced in the law in July of this year was the transition of the brokerage profession from being conducted by individuals to companies (See the July Egypt Legal Update). The new rules in the Executive Regulations spell out in detail the requirements for a company to be licensed as an insurance broker. The most important ones are: an economic feasibility study, a professional liability insurance, and a certificate determining the person in charge of effective management. - The amended Executive Regulations provide the regulator – EISA – with new powers to impose prudential measures on insurance companies, particularly with respect to capital adequacy and risk management, which EISA may issue by administrative decision from its own board. In addition, the new rules impose a greater duty of reporting by the insurance companies to EISA, and grant the latter the right to conduct onsite inspections to ensure that companies are in compliance with internal audit and risk management requirements. - An appeals committee is to be set up to review disputes involving brokers whether with EISA or insurance companies.
Conclusion
The new rules introduce a number of key useful provisions, especially with respect to the prudential supervision over insurance companies, and the guidelines for investing their assets. However, it is surprising that the investment rules move in favor of increasing the maximum permitted to invest in real estate, and reducing the maximum permitted in stocks and investment funds. As regards the powers granted to the regulator to impose new prudential requirements, especially with regard to risk management and capital adequacy and to require companies to increase their capital accordingly, these on the whole are important powers and they go a long way in putting EISA at par with the Central Bank of Egypt in terms of regulatory powers. However, one key difference is that the Central Bank’s powers were stated in the law and not in executive regulations. This is a significant weakness in the new rules, and this level of regulatory powers belongs to the Insurance Supervision Law and not to its Executive Regulations.