Hisham Ramadan tells Ruolin Wang and Yiannis Parizas about the growth of the actuarial and insurance sectors in his country, and the challenges that remain
In 1997, Hisham Ramadan, a young mathematics graduate in Egypt, came across “a very attractive, interesting opportunity”.
“It was effectively an internship plus a scholarship,” he says. “I worked for the then insurance regulator, and completed a master’s degree in actuarial science at Bayes Business School (formerly Cass) in London at the same time.”
So began Ramadan’s career in regulation which, aside from the occasional venture into industry – including as “the youngest chief executive officer for the largest state-owned life insurance company in Egypt from 2010–14” – he continues to this day, as assistant chairman at the Financial Regulatory Authority (FRA), the current Egyptian insurance regulator.
A changing landscape
When Ramadan was a student, there were only a handful of insurance companies in Egypt, and seven or eight qualified actuaries – but things were beginning to change. Local actuarial degree programmes were being set up so that students no longer had to study overseas. “Now we have around 50 qualified Egyptian actuaries between life and non-life, mostly UK or US-qualified,” he says.
The wider insurance industry was also undergoing rapid change.
“In 1995, the Egyptian insurance industry became open for foreign investments for the first time. In 1996, the market witnessed the first entry of a multinational insurer: Allianz. In 1997, the government liberalised the industry further and foreign investors could now own up to 100% of an insurance company in the market.” There are now more than 40 insurance companies, with more in the pipeline for regulatory approval. In 2021, according to the FRA’s annual report, life insurance total gross written premium reached US$1.5bn (£1.2bn), with a growth rate of 29%.
At the same time, says Ramadan, “In 2021, spending on insurance premium was only US$29 per capita, with total insurance premiums amounting to around 1.3% of GDP. Penetration is still very low, which means there is still much potential for growth.”
Growth through innovation
As part of the FRA’s drive to include financial inclusiveness, it hopes to double penetration in the next four years – and distribution will lie at the heart of this. Ramadan sees technology as the direction of travel. “The penetration rate for smartphones in the country is about 100%!” he says.
The Egyptian insurance market is heavily reliant on brokers, and Ramadan believes technology is an enabler rather than a replacement for brokers. “The FRA permits brokers to establish price comparison websites or aggregators, but this should be done as a joint partnership between a licensed broker and a technology firm. Ultimately, the responsibility remains with the broker, who is regulated and supervised by the FRA.”
As with many regulators today, Ramadan recognises that achieving a balance between fostering innovation and managing emerging risks can be challenging. “Technology in insurance must be multi-regulated,” he says. “Regulating technology in insurance should involve the FRA, but also the regulator of mobile operators, the authority that’s responsible for anti-money laundering, the responsible authority for the payment system.
“One of the FRA’s biggest challenges is to establish a common protocol and shared understanding between all these different regulators,” says Ramadan. With the passing of the fintech law in 2022 (officially, Law No. 5 of 2022), Egypt is rising to the challenge. “This will be an umbrella law for fintech in all non-banking activities and not only in insurance,” he says.
“An existing international insurance company has already communicated interest with the regulator to establish the first digital insurance company in the market. The new law will enable the FRA to license such a company,” he says.
Another important area of innovation is product design. Ramadan gives an example from the Egyptian market: “The local insurance companies are mainly focusing on investment-linked products, and there is still a lack of annuity products in the market. But annuities would better meet the insurance needs of many in the community, to supplement the state pension, which tends to be very low.”
Some of this absence is explained by the lack of investment options, Ramadan believes, and this presents an opportunity for potential synergies between insurers and asset managers. “It can be challenging to find long-term investments to match the long-term liabilities of such products. We really need investment products to support these types of insurance products. On the other hand, asset managers and the capital markets can also benefit from the introduction of these insurance products to mobilise long-term investments,” he says.
The role of the regulator
Since its establishment in 2009 through the merger of former regulatory bodies, the FRA has made considerable changes to the Egyptian regulatory landscape.
“The first mandate of any regulator is to protect consumers, and the FRA has done a lot in this area,” says Ramadan. One example is the introduction of consumer protection guidelines in non-banking sectors for the first time. These guidelines cover the entire lifecycle of the product, from marketing, underwriting and claims handling to disclosures and complaints.
“We also established the Policyholders’ Protection Fund – one of the first in Africa and the Arab world,” he says. “All insurance companies contribute to the fund, and it is called upon in case an insurance company is unable to fulfil its obligations.”
As the single regulator for non-banking financial activities in Egypt, however, conduct regulation is not the FRA’s only focus. “With our comprehensive strategy for developing non-banking activities in Egypt, we want to achieve multiple objectives: improving financial inclusion, promoting sustainability principles, and – last but not least – enhancing our risk management toolbox by creating early-warning systems and introducing stress testing to the non-banking financial sectors,” says Ramadan.
Indeed, upgrading the country’s risk management toolbox has been an FRA priority for many years. “We have introduced group supervision; we have made it obligatory for insurance companies to be rated by a rating agency; we are seeking help to move to risk-based supervision and risk-based capital. On the whole, we are looking to align with international regulatory standards,” he says.
A key phrase in the Egyptian insurance industry in recent years has been the ‘Unified Insurance Law’. “The idea is to unify individual legislations and laws governing insurance activities under a single law, which will enable the FRA to deliver on our priorities.”
A project that Ramadan is particularly proud of on a personal level is the construction of the first Egyptian life tables. “Hopefully, we are in the last phase of introducing the tables to the market. And this is a welcome achievement because, over the past century, we have been relying on the British life tables from the 1950s and 1970s.”
Unsurprisingly, there are many differences between mid-20th century British mortality and current Egyptian mortality. “Preliminary results from those tables show that average mortality rates are less than what had been used by the companies by 20%,” Ramadan says. “The other interesting result is that the shape of mortality rates between ages 20 and 60 is totally different from the shape shown in the British life tables used before.
“This is a good start for the market, which can now build its own experience. It’s also a useful technical tool for reserving and pricing.
Of course, if I’m saying that mortality rates are actually 20% lower than assumed, this should also improve the affordability of life insurance products in the market,” he says.
"We have introduced group supervision, we have made it obligatory for insurance companies to be rated by a rating agency, we are seeking help to move to risk-based supervision and risk-based capital"
The FRA’s journey has not been without challenges, and Ramadan highlights internal technology capabilities as one. “It’s difficult to create technological solutions for a diversified regulator like the FRA. There is no super–application that fits all the businesses we supervise.
“One of our challenges will be adopting regulatory technology (regtech) and supervisory technology (suptech). We have recruited talent from the technology sector to work for the FRA, we have a strategy for this transformation, and we are seeking technical assistance from international organisations to help us move to regtech and suptech models. It’s a challenge not just for us but for supervisors all over the world,” he says.
In 2020, the World Bank ranked Egypt 114th out of 190 countries in terms of ease of doing business – below many of its Arab neighbours. Enhancing the country’s ranking remains a challenge, and one for the whole country to address, Ramadan says. “It’s not just a mandate for the FRA, but for all government members, who need to come together to create more attractive environments for foreign investments and for doing business in the market. It’s a challenge for the whole country.”
And it is a challenge that Egypt has already taken on. The same World Bank report cites Egypt as being on the top 10 improvers list for three consecutive years. In particular, it has strengthened protection of minority shareholders, among other areas of improvement. However, Ramadan points out that this overall metric does not necessarily reflect the ease of doing business in the insurance industry. For example, while some sources perceive Egypt as a high-risk country owing to its sovereign credit rating, Ramadan says: “The non-banking sector, and specifically the insurance industry, is highly stable, and that’s reflected in the credit ratings and the strong financial performance of our companies.”
The FRA has also worked closely with the insurance industry to develop an ‘insurance roadmap’ to tackle key environmental, social and governance issues. Ramadan highlights the FRA’s decree regarding gender equality on company boards. “Between 2019 and 2021, the proportion of Egyptian insurers with women on boards more than doubled, from 35% to 88%,” he says. From board representation to inclusive finance, Ramadan believes that the regulator has its part to play in promoting gender equality.
The most pressing challenge for the FRA and for the country, he believes, is climate change. “This year, the FRA and the Insurance Federation of Egypt formed a joint actuarial committee. Many of the actuaries on the committee work for international companies, and they will be able to transfer climate change-related knowledge, policies and practices from the parent company to the local company. This knowledge transfer will help us build our own framework to integrate climate risks into the operational models of our insurance companies.”
Egypt has ambitious plans to move to renewable energy, Ramadan says, citing Benban Solar Park in the south of the country as an example – but he stresses that climate change cannot be solved piecemeal by individual countries. “The action cannot be taken by any one country. It depends on the whole global economy – how much each country produces, exports and imports.
“Yes, Egypt is making great efforts and investments to transition to a green economy, but this requires the assistance of developed countries in facilitating access to the technology needed for this transformation, which has become expensive and sometimes prohibited from being used in other countries,” says Ramadan. “It is our collective task. We cannot see it as a problem for industrialised countries or non-industrialised countries. Everyone in the world has to share the bill.”