Separating life and health from property/casualty insurance operations: an assessment of solvency in the Egyptian insurance market

Abstract

In this article, we evaluate the effect of a recent change in regulation of insurers operating in the Egyptian insurance market that required all insurance companies to separate their life and health (L&H) and property/casualty (P/C) activities. We examine,specifically, the effect on the solvency of P/C insurers when they are required to form two completely separate companies for their operations (i.e., divest of their L&H business). Separating into separate entities may increase the transparency of the insurer’s operations, especially with respect to how they allocate capital across the company. Using financial data for all insurers in the Egyptian market for the period 2006–2015, we test whether solvency—captured via 13 solvency surveillance ratios—is affected by the decree. For robustness, we run the analysis for the whole market and for private companies only, focusing on P/C insurers only before and after the decree. Our findings indicate that the likelihood of insolvency, based on our evaluation of solvency ratios, increased after the decree.