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Legal definition of “a private insurance fund”

A private insurance fund is any system in an association, a syndicate, an authority, or for individuals related to one profession or work, or any other social relationship which is established without capital. According to its articles of association, its purpose is to pay to its members, or beneficiaries, damages, financial benefits, periodic salaries, or specific pensions in one of the following cases:

• Marriage of a member or his children; reaching a certain age; or death of the member or his dependent(s)

• Retirement from work or losing a source of income

• Incapacity to work due to disease or accidents

• Any other purposes approved by the EFSA

Importance of private insurance funds

Insurance funds are considered among the instruments of providing insurance against risks of decrease of income as a result of termination of relationship between a member and the entity where the fund is established. They are also a tool to achieve economic as well as social objectives. In addition, they are main channels for pooling national savings as represented in subscriptions deducted from members and using such savings in financing national investments, which imply provision of new job opportunities and alleviating the impact of money inflation.

Thus, private insurance funds have major significance for staff, the entities where they have been established, and the state as follows:

Benefits for staff

• Provides members with a sense of content and security

• Contribute to maintenance of living standards after staff leave the service due to retirement, death, permanent, or total disability

Benefits for entities where funds are established

• Increase production

• Maintain expertise and workforce stability

• Attract highly competent staff

Benefit for the State

• Private insurance funs are considered one of the savings channels and money making in the state

• They are considered one of the sources for financing the state development plan through investment of the money of the funds

• They help alleviate the impact of inflation

• They are considered a means to strengthen national systems for social insurance, especially in a state which does not work on increasing its pensions with the rise of prices.

Forms of private insurance funds in Egypt

Private insurance funds in Egypt can be classified in the light of the benefits of insurance and services delivered to their members as follows:

- Association funds

- Savings and investment funds

- Individual employment contracts funds

- Medical treatment funds

- Complementary pensions

- Funds of special nature

Supervision and regulation of private insurance funds and registration requirements

Article (7) of Law No. 10 of 1981 and its amendments set out the mandate of the Authority, i.e. enforcement of provisions of this law. In particular, it has the right to

“Supervise and regulate private insurance funds in accordance with provisions of Law No. 54 of 1975 issued on it.”

Private insurance funds are subject to the supervision and regulation of the Authority as exclusively follows:

1) upon registration and establishment of the fund and upon amendments of its statutes

2) during the practice of business of these funds (through period examination)

3) upon termination of the business of these funds (whether upon liquid or mandatory liquidation, cancellation or merger of the funds)

The purpose is to ensure the integrity of their financial positions, ability to meet their obligations and protect their members and beneficiaries, and compliance with the provisions of the law and its executive regulations.

I. The Authority’s role upon registration of funds or amendments to their statutes

• According to Article (3) of Law No. 54 of 1975, funds may not engage in their business before registration.

• There are procedural steps upon registration of the insurance funds with the Authority according to rules and procedures set out in the law, i.e.:

1) The Authority registration department receives the registration application of the fund accompanied with the following papers and documents:

- The statutes of the fund

- An actuarial study

- Information about the fund including names and addresses of its senior management

- Registration fees

2) The registration department conducts a preliminary review of the application to make sure the documents submitted are valid.

3) Documents submitted for the registration of the fund are distributed to the concerned departments of the Authority (the Actuarial Department, Funds Department, and the Legal Affairs Department) for review.

4) Each department reviews the file and verifies its contents.

5) Each department notifies the registration department with the results and feedback after the examination of the file is completed.

6) A committee comprising all parties involved in the review of the file has a meeting to discuss the application more broadly and provide feedback about comments made about it.

7) The Authority registration department notifies the applicant of the final decision after the Authority Chairman approves the decisions of the above committee

The Authority completes examination of the registration process by issuing a decision for registration of the fund, entering its data in the special record, and publishing the decision in the Egyptian Gazette at the expense of the fund.

The statutes of a fund must have certain controls which can be summed up as follows:

1) Controls that its statutes must incorporate in its provisions

2) Technical controls related to the submitted actuarial study

3) Special controls for the minutes of meetings of the general assembly of the fund

Controls that must be available in the statutes of private insurance funds

The statutes of the fund must define accurately

1) date from which benefits are calculated to take effect and date of collection of subscriptions

2) definition of a founding member

3) definition of subscription fees

4) subscription periods

5) definition of incapacity that results in service termination

6) membership conditions

7) demise of membership status

8) benefit advantages

9) rate of administrative expenses

Technical controls for the actuarial study submitted

They are as follows:

• The actuarial report must be prepared according to the template developed by the EFSA for that purpose effective 1/1/ 2009.

• The actuarial study must deal with the financial position of the fund (which should be attached to the registration papers) on the basis of using the maximum interest rate in line with the controls and decisions of the Authority in this regard.

• The actuarial study must be prepared on the basis of salaries with annual increments in line with the annual increase of salaries in the entity that founded the fund.

• If there are insurance benefits which are paid to the founding members against periods prior to the date of subscription collection and disbursement of the benefits, there must be a founding finance payment for these periods with documents evidencing the existence of its existence upon registration of the fund.

• The statutes of the fund must stipulate that insurance benefits are disbursed to members for actual periods at the [founding] entity. Disbursement must be made at the rate of a number of months for every year of subscription.

• If the statutes provide for disbursement of benefits at a fixed rate upon attainment of the age of sixty, death or incapacity, there must be real finance for this system.

• There must be insurance fairness when determining subscription fees for new members and founding ones.

The EFSA’s role when the fund is engaged in the business

The EFSA’s role is performed as follows:

1) Periodic inspection of the operations of these funds through the balance sheets sent to the Authority

2) Enhancement of examination methodology through in-office and field examination of the operations of the funds regarding consideration of risks

3) Following up on funds as regards disbursement of benefits as set out in the statutes

4) Following up on the investment policies of these funds and their conformity with rates set out in the executive regulations of Law No. 54 of 1975.

5) Notifying the funds of the findings of the examination. According to Article (13) of the law, if the examination showed that the money of the fund is not sufficient to meet its obligation, it was proved that the fund does not operate in accordance with the provisions of this law or its complementary decisions or the statutes, or the fund management is suspected of cheating or misrepresentation, the Authority Chairman may:

• Send a warning to the fund including violations and granting a grace period of one month to present its defense. If not convinced of the point of view of the fund, the Authority Chairman has the right to cancel the registration of the fund and appoint a committee to liquidate it.

• The issue is presented before an extraordinary general assembly of the fund to confirm the approval of reduction of established benefits and/ or raising the subscription values so that the money of the fund becomes sufficient to meet its obligations.

III. The EFSA’s role upon termination of business

• The EFSA may, in accordance with provisions of Article (31) of the law, issue a decision for the liquidation of the fund and cancelation of its registration if:

1) The money of the fund is not sufficient to meet its obligations

2) It is proved that the fund does not comply with the provisions of this law or its executive decisions or the statutes.

3) The Fund’s management is suspected of deceit or fraud.

4) The fund stops engagement in business or it is in the interest of the its members if it is liquidated

5) The fund is merged with another fund

• According to Article (21) of the law, members of the fund may, through their general assembly and with a majority vote of two thirds of the members, decide to solve the fund.

• The EFSA supervises the dissolution of the fund by issuing the dissolution decision and formation of a tri-party committee for supervision of the dissolution process and determining

1) Functions of the committee

2) Determination of the date for stopping disbursement of benefits and collection of subscriptions effective the date of the general assembly.

3) Determination of the liquidation period required for the committee to finish its work

4) Determination of the liquidation expenses

• The EFSA reviews the work of the liquidation committee before distributing the net liquidation money among the members to ensure it is properly distributed.

• After that, the liquidation committee distributes the money of the fund. Once it completes its assignment, it submits to the EFSA a report to that effect after the balance of the current account of the fund becomes zero.

• The decision of cancelation is issued and published in the Egyptian Gazette.

Top indicators of the private insurance funds

The following indicators for FY 2008/ 2009 confirm that the private insurance funds sector continues to perform its role in supporting and boosting the national economy of the State.

• Private insurance funds paid L.E 3.2 billion to subscribers as compensations during the year.

• Private insurance funds’ contribution to the GDP was 2.44%.

• Premiums of insurance companies’ and private insurance fund’s contribution to the GDP was 1.12%.

Results of the activity of private insurance sector during 30/6/ 2008- 30/6/ 2009

• Number of funds: 638

• Number of members: 4.7 million compared to 4.6 million members in the year before.

• Total assets of private insurance funds: L.E 26.7 billion for the year 2009 compared to L.E 23.9 bllion for the year earlier (an increase of 11.7%).

• Total reserves of private insurance funds: L.E 24.2 billion for the year 2009 compared to L.E 21.7 billion for the year earlier (an increase of 11.5%)

• Total investments: L.E 24.1 billion for the year 2009 compared to L.E 20.9 billion for the year earlier (an increase of 15.8%)

• Total subscriptions: L.E 2.9 billion for the year 2009 compared to L.E 2.5 billion for the year earlier (an increase of 16%)

• Total compensations: L.E 3.2 billion for the year 2009 compared to L.E 2.7 billion for the year earlier (an increase of 18.5%)