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Comparative Savings Plan between Lebanon and Egypt

Comparative Savings Plan between Lebanon and Egypt

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Comparative Savings Plan between Lebanon and Egypt

Savings Plan are offered by life insurers that provides long term savings benefits to individuals while being protected via life coverage or basic accidental coverage.

We find quite significant similarities between insurance companies and countries since such products serve to save for specific needs (such as marriage, education, and retirements) while being protected in case of accidents or death, or even both. The main differences are based on the regulations of the country they are being offered, in addition to the country market needs and culture.

In Lebanon, for example, insurance regulators provide basic guidelines when it comes to Savings Plan, therefore, we see many different offerings and products. The investment platforms that insurers provide the insured to choose from are based on local funds, international funds, and two investment options that are unique to most of the life insurance companies in Lebanon.

Those two options are linked to the structure that insurance companies are formed in addition to the government investment in Treasury Bills and Euro Bonds.

Local banks in Lebanon are major shareholders in some of the insurance companies in Lebanon, which give them unique investment offering through bank treasuries. Life insurers form different investment strategies with their banking partners while getting higher rates of return on investment. Although it is not an exclusivity agreement between the bank and insurer, the insurer offering of strategies formed with the bank provides a guaranteed product, or at least, a proper marketing offering that insurers can offer to its customers.

For example, Blom Bank is a major shareholder in Arope Insurance, in which they are offering an education plan linked to guaranteed investment return and a life insurance policy that guarantees the continuity of the program in case of death.

Other unique option that can be found in Lebanon and being offered along with investment selection in Savings Plan are: Treasury bills (TBs) and Euro Bonds (EBs) issued by Lebanese Central Bank that provides high interest rates. The risk associated with TBs and EBs provides the insured high potentials to make high returns from their policies from early years; 8-12% were the last five years’ rates of returns distributed on TBs, while EBs where at 6-8%. Despite the high risk and the high volatility of the Lebanese market and its TBs issued in Lebanese Pounds, the potential earnings from such investments, in addition to the currency being backed by US Dollars and fixed at $1 = LBP 1,500 for more than 20 years, gives assurance for customers to invest in such investment offering, having in mind the high returns that will cover their early heavy fees.

Other than investment and tie-up with banks, Savings Plan in Lebanon needs further regulations guidelines and monitoring, especially when it comes to the fees and charges imposed on the insured on the initial two years from the start-up of the plan; this is in addition to the proper disclosures that should be presented to the insured.

As compared to Lebanon, Egypt regulators provide a more strict regulation, where it allows only certified insurers to offer and sell life insurance policies including Savings Plan. The insurer needs to pass an exam at the Insurance Authority before being able to sell or offer. The insurers are also monitored by the regulator where misrepresentation and complaints can impose penalties and consequences from ban to imprison in case of proven case.

Investment guidelines for insurers in Egypt are also regulated by the Insurance Authority who sets the limit of investment allocation: they allow a total of 15% of investments in bonds (and only 5% in any one security), 25% in shares (5% in any single security), 30% in real estate (10% in any single investment), and 50% in cash or equivalents. The investment guideline set by the regulators provides a balance to a conservative strategy. This is due to the minimum allocation of 50% in cash or equivalents that will reduce the risk and avoid high losses in case of market losses.

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