VZCZCXYZ0003
RR RUEHWEB
DE RUEHEG #2175/01 1931451
ZNR UUUUU ZZH
R 121451Z JUL 07
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 6120
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0298
UNCLAS CAIRO 002175
SIPDIS
SENSITIVE
SIPDIS
STATE FOR NEA/ELA, NEA/RA, EB/IDF
TREASURY FOR MATHIASON AND HIRSON
COMMERCE FOR 4520/ITA/ANESA/OBERG
E.O. 12958: N/A
TAGS: ECON EFIN EINV EG
SUBJECT: FINANCIAL SECTOR: INSURANCE SECTOR UPDATE
REF: 06 Cairo 6425
SBU: PLEASE PROTECT ACCORDINGLY
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Summary
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1. (SBU) The Egyptian Insurance Holding Company will move ahead to
privatize the insurance sector by combining the main public
companies into one large "champion" company that will be privatized
in phases. The GOE will continue to own a real estate insurance
company, a "national" company that will insure government entities,
and a re-insurance company. Recent legislative changes have helped
pave the way for privatization of the new champion company by making
insurance assets more attractive to potential investors.
Privatization of one of a state-owned insurance company is a
benchmark of the Financial Sector MOU.
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New Restructuring Plans
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2. (U) Emboffs spoke with Mahmoud Abdallah, Chairman of the
Egyptian Insurance Holding Company, who indicated that the GOE has
changed direction in its ongoing efforts to privatize the insurance
sector. It will now merge three of the major public firms (Misr
Insurance, Al-Chark Insurance and Egyptian Reinsurance) into one
company that will be privatized. Original plans had been to create
new companies dedicated to particular types of insurance lines, and
those would each be candidates for sale (reftel). Abdallah
indicated that recent press reports that the Holding Company itself
would be privatized, were incorrect.
3. (U) Abdallah said that plans were proceeding for restructuring,
but that the results of the advisory consortium's study of the
insurance sector indicated that privatization would be better
accomplished by creating a large "champion" company that could be
privatized in phases. The first phase would be an IPO of 50% of the
shares of the champion company, to get an accurate market price. In
the second phase, the holding company would search for a strategic
investor to buy at least 20% of the company. The holding company
would retain the remaining 30%, but the champion company would have
a new corporate board. Abdallah confirmed reports in the media that
the holding company hoped a phased-in privatization of the champion
company would lessen public resistance to the idea of privatizing
the insurance sector.
4. (U) Abdallah said that the first phase of privatization, the
IPO, might be conducted by the end of 2007. The U.S. - Egypt
Financial Sector MOU ties $25 million in ESF funds to privatization
of one of the insurance companies. Abdallah acknowledged the
importance of getting the privatization done soon, but he repeated
statements made during the last meeting with econoff (reftel), that
the GOE wanted to do the privatization correctly, not just quickly.
(Note: the referenced date for the privatization in the MOU -
December 31, 2005 - has already passed).
5. (U) As part of the creation of the champion company, all of the
real estate assets of each insurance firm have been stripped out and
put into a separate company that will remain publicly-owned. The
value of the real estate assets stripped out of each company was
replaced in cash on the balance sheets of the companies. The GOE
will continue to own a "national" insurance firm (The National
Insurance Company) that insures government entities, including
pensions. Abdallah indicated that the Holding Company has not
entirely scrapped the previous plan to strip out types of insurance
and create specialized companies. He mentioned medical insurance as
one possibility.
6. (SBU) World Bank staff who are supporting this process noted that
Minister Mohieddin may only offer 40% of the company in the IPO and
then sell the remaining 60% to a strategic investor. The World Bank
would prefer that 50% of the company be sold via the IPO. World
Bank staff believes that the GOE will use the proceeds of the IPO to
continue to clean the portfolio in hopes of making it more
attractive to a strategic investor. World Bank staff also note that
the insurance policies held by the police and the military which are
spread among all the three main companies will be consolidated into
National Insurance.
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Legislative Changes
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7. (U) Recent legislative changes have also helped set the stage
for privatization, according to Abdallah. Parliament passed a law
requiring Third Party Automotive Liability insurance, something the
insurance sector has been advocating for years. This will increase
the value of the automobile insurance portfolio of the champion
company, adding to the attractiveness of the champion company for
potential investors. The insurance sector as a whole has also
benefited from recent tax reforms, which eliminated taxes on
insurance premia. Abdallah noted that Parliament is currently
considering revisions to "Law 10," the law governing the whole
insurance sector. The revisions will give the Egyptian Insurance
Supervisory Authority (EISA) risk-management supervision over the
whole industry and bring the industry into greater compliance with
international standards. USAID is assisting EISA in management and
supervisory capacity-building through the TAPR-II project, and
Abdallah noted that EISA is already "less corrupt and more
client-oriented" as a result of this assistance.