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. 
 
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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. 
 
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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