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Cablegate: Financial Sector Reform: Insurance Sector

VZCZCXYZ0002
RR RUEHWEB

DE RUEHEG #6425/01 2900957
ZNR UUUUU ZZH
R 170957Z OCT 06
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 2064
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0209

UNCLAS CAIRO 006425

SIPDIS

SIPDIS

SENSITIVE

STATE FOR NEA/ELA, NEA/RA, EB/IDF/OMA
USAID FOR ANE/MEA MCCLOUD AND DUNN
USTR FOR SAUMS
TREASURY FOR NUGENT AND HIRSON
COMMERCE FOR 4520/ITA/ANESA/TALAAT

E.O. 12958: N/A
TAGS: ECON EINV EG
SUBJECT: FINANCIAL SECTOR REFORM: INSURANCE SECTOR

Sensitive but Unclassified. Not for Internet distribution.

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SUMMARY
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1. (SBU) Econoff met with Mahmoud Abdallah, head of the new
Egyptian Holding Company for Insurance, to discuss insurance sector
reform. Although the Ministry of Investment (MOI) planned to
privatize only one of the four public insurance companies, Abdallah
convinced Minister of Investment Mohieldin to restructure and
privatize all four companies. Restructuring will involve three
phases: 1) due diligence; 2) assessment; and 3) re-grouping into
new firms focused on specific insurance types, e.g., life, health,
property, etc. Abdallah predicted the first restructured company
would be privatized by mid-2007. Although the GOE has already
missed the deadline for privatization of an insurance company in the
U.S.-Egypt Financial Sector MOU, Abdallah was unworried. He
maintained that restructuring was needed to attract buyers and noted
that the first tranche of a World Bank loan for financial reform
would soon be disbursed. Private insurance companies have welcomed
the restructuring plan, believing it will invigorate the insurance
sector, which suffers from a poor image among Egyptians. End
summary.

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RESTRUCTURING AND PRIVATIZING THE WHOLE SECTOR
--------------------------------------------- -

2. (SBU) As part of the GOE financial sector reform program, MOI
recently established the Egyptian Insurance Holding Company to
manage the four public insurance companies: Misr, Al Chark,
National, and Egyptian Reinsurance. Econoff met with Mahmoud
Abdallah, Chairman of the holding company and an Egyptian-American.
Abdallah is the former Chairman of American Reinsurance, at one time
the largest reinsurance company in the U.S. Abdallah explained that
when Mohieldin asked him to head the holding company, the goal was
to privatize only one of the public companies, in line with the
Financial Sector MOU. Abdallah convinced Mohieldin that all four
companies, which dominate Egypt's insurance market, needed
restructuring and privatization. In exchange for agreeing to head
the holding company, Mohieldin allowed Abdallah to develop a plan to
restructure and privatize all the public companies.

3. (SBU) According to Abdallah, in their current state, none of the
public companies are attractive to buyers. Each company offers the
full range of policies, i.e., life, health, property, etc., and none
excels in any area. Restructuring is needed to turn the companies
into viable, competitive entities that can attract private sector
interest. The first phase of the restructuring, due diligence of
all four companies, is already complete. The due diligence found
one company bankrupt, another close to bankruptcy, a third in
adequate condition and a fourth profiting from investments, but not
premiums. The second and current phase of restructuring is an
assessment of each company's assets. Ernst & Young and Milliman
Actuarials, inter alia, are conducting the assessment, which will be
completed by the end of the year. The third and final phase of
restructuring will be re-grouping of the existing companies' assets
into new firms focused on specific policy types, such as life,
health, property, etc. The new companies will then be put up for
sale one by one, starting in mid-2007.

--------------------------------------------- ---
U.S. ASSISTANCE WELCOME, BUT NOT A MAJOR CONCERN
--------------------------------------------- ---

4. (SBU) Abdallah was sanguine when discussing the restructuring
plan, even when econoff pointed out that the GOE had already missed
the 12/31/2005 deadline for privatization of an insurance company
specified in the Financial Sector MOU. He maintained that without
the lengthy restructuring process, no private investors would
consider buying any of the public companies, even the one turning a
profit. He also noted that the GOE would soon receive a $500
million loan from the World Bank (WB), the first tranche of a total
$1 billion loan to support financial sector reform. Comment:
Besides alluding to the fact that the WB's $500 million loan is
obviously more important than the $25 million tied to insurance
privatization in the Financial Sector MOU, Abdallah also seemed to
imply the GOE's commitment to insurance sector reform was not
dependent on donor assistance. End comment.

--------------------------------------------- -
PRIVATE SECTOR POSITIVE ON RESTRUCTURING PLANS
--------------------------------------------- -

5. (SBU) Private sector insurance companies are largely supportive
of the GOE's plans to restructure the public firms. Mujib Khan,
Deputy Chairman of AIG International in Egypt, echoed Abdallah's
view that none of the public companies, in their current state,
could attract investors. Moreover, restructuring should have an
overall positive effect on the sector. Khan explained that the main
problem in Egypt's insurance sector is lack of a competitive,
service orientation. The public companies, which have 90 percent of
the market share, focus mainly on actuarial work, rather than sales.
Moreover, like many sectors in Egypt's economy, jobs are handed out
in public companies based on friendships, family ties, etc., rather
than competence. To address this, the Egyptian Insurance
Supervisory Authority has draft legislation allowing financial
brokers, rather than just insurance agents, to sell policies.
Parliament will consider the legislation in its upcoming session.
Khan was hopeful that the introduction of brokers would complement
the restructure and boost overall productivity in the insurance
field.

6. (SBU) Khan also commented that the Egyptian public remains
skeptical of the concept of insurance, particularly personal
policies such as life insurance. Insurance companies have a
negative image, and are seen as "predators," seeking to rob
customers of their money, rather than as safe institutions in which
to invest. AIG began a media campaign a few months ago to increase
awareness of insurance as a form of investment and "make it
respectable." The AIG campaign encouraged other private firms to
follow suit. Insurance, however, remains a less attractive
investment option for most Egyptians, whose savings are still
largely directed to the country's bull stock market.
JONES

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