Banking, Finance and Insurance
Former Fed chief assesses Egyptian, US economies
AmCham’s Banking & Insurance Committee hosted Paul Volcker, former chairman of the US Federal Reserve, for a discussion entitled “Outlook on the Egyptian and US economies,” held at the Four Seasons Nile Plaza hotel on February 6.
Known for ushering in an era of financial deregulation and innovation, Volcker served as chairman of the US Federal Reserve from 1979 to 1987. He is widely accredited with ending the United States’ 1970s stagflation crisis by helping to lower stifling double-digit inflation rates.
Volcker opened his presentation by stressing the significance and implications of US spending on a global scale. He cites that there have been some positive effects concerning the globalization of finance and US spending, including an increase in direct investments – which Egypt in particular has benefited from – and an increase in the reserves and outward flow of capital from emerging markets. However, while the countries of emerging markets are producing more than they are spending, the US continues to spend much more than it produces, creating an interesting irony of the “poorest countries in the world financing the richest” – a phenomenon that, according to Volcker, is clearly not sustainable.
The former Fed chief also spoke of advances in the technologies of financial markets including derivatives, hedge funds and other funds able to heavily leverage investor capital. While this development appears to have contributed to growth and the ability of individual businesses to manage risk, it is questionable whether such trends will have a stabilizing or destabilizing effect on financial systems taken as a whole, he noted.
In closing, Volcker called on the US to assume a responsibility not only for financial matters, such as monitoring the stability and inflation of the dollar, but also for playing a more active leadership role in addressing global warming. It was Volcker’s opinion that concerns about the economy “pale in significance compared to the question of what happens to this planet” if no action is taken to deal with global warming.
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A fresh look at insurance reform
Mahmoud Abdallah, chairman of Egypt’s Insurance Holding Company (IHC), spoke about insurance reform during a Banking, Finance & Insurance Committee meeting on January 16 entitled “Objectives/direction of the holding company in reorganizing the public sector insurance companies.”
Abdallah opened the presentation by explaining the concept of a holding company and how it can contribute to the insurance industry in Egypt. He also provided an overview of the government’s privatization plan, aimed at achieving higher growth and employment. According to Abdallah, Egypt is a promising country, but insurance premiums are too small considering the size of the economy.
IHC has formulated its own plan based on a report prepared by a group of advisers from the legal, financial and actuarial fields. The report has three main pillars: first, fulfill the requirements of Law No. 203 for public sector enterprise. That means approving IHC’s bylaws and organization charts, setting management principles between IHC and its subsidiaries, forming a general assembly and board of directors, as well as writing financial and personnel bylaws. Second, restructure subsidiaries. Third, fulfill the requirements of related supervisory authorities and enhance investment policies.
Abdallah also emphasized the need for asset-liability management and setting up a three-year business plan for each subsidiary company, with the goal of separating real estate from the core business, upgrading information technology, using the latest actuarial models, improving employees’ performance and qualifications, focusing on customer satisfaction and loyalty, and developing a plan with the ministry and Egyptian Insurance Supervisory Authority (EISA) to increase insurance awareness and support the changes in the insurance sector.
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