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 
----------------------- 
 
¶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 
------------------- 
 
¶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.