FRA Updates Investment Rules For Insurance Companies

(MENAFN- Daily News Egypt) The financial Regulatory Authority (FRA), under the leadership of Mohamed Farid, has issued Decision No. 2 of 2025, introducing new investment rules and ratios for the funds of insurance and reinsurance companies. This initiative aligns with the authority's ongoing efforts to establish flexible regulatory frameworks that allow companies to diversify their investment channels, improve efficiency, and enhance the financial stability of the insurance sector, all while adhering to governance and risk management principles.

The new regulations apply to all entities engaged in insurance, reinsurance, takaful insurance, specialized medical insurance, microinsurance, and any other specialized insurance activities as defined by the Unified Insurance Law No. 155 of 2024.

Under the revised rules, insurance and reinsurance companies must allocate a minimum of 5% of their free funds to open-end investment funds focused on listed stocks on the Egyptian Exchange (EGX). With FRA approval, direct investments in listed stocks may contribute to this 5%, provided that investments do not exceed 5% of the company's paid-up capital or 15% of a fund's net asset value, whichever is lower.

Free funds refer to shareholder equity, while allocated funds represent the obligations of insurance companies toward policyholders and beneficiaries. For allocated funds, companies are required to invest at least 2.5% of their paid-up capital in open-end investment funds that specialize in listed stocks. The same investment caps-5% of paid-up capital or 15% of a fund's net asset value-apply. With FRA approval, direct stock investments may also fulfill this 2.5% requirement. However, total investments in stocks and open-end investment funds must not exceed 30% of allocated funds.

The decision also imposes a 5% limit on investments in commodity and metal funds or any exchange-traded instruments backed by metals on EGX.

In the real estate sector, life insurance companies may invest up to 10% of their invested funds in real estate funds, while property and liability insurers are limited to 5%. Given the long-term nature of life insurance investments, the same 5% or 15% cap applies to investments in individual real estate funds. However, these restrictions do not apply to real estate funds established by insurance companies themselves.

For the first time, FRA is introducing regulations for investments tied to unit-linked insurance policies. Companies must segregate these investment-linked funds into independent accounts managed through a dedicated electronic system. Additionally, they are required to maintain a detailed investment register that includes policy numbers, client names, invested amounts, investment instruments, portfolio returns, and any other data requested by the FRA.

Article 10 of the decision stipulates that existing investments exceeding the newly introduced limits will remain valid, but further exceedance is prohibited. Companies must meet the minimum allocation requirements outlined in Article 8 within six months of implementation.

A key provision in the new regulations mandates public disclosure of investment performance. Companies must publish returns and unit prices for unit-linked policies separately for each investment portfolio on their websites, updating this information at least once a month. Additionally, total costs, fees, and other charges associated with managing these investments must not exceed the amounts specified in FRA-approved insurance policies.

The FRA emphasized that these regulatory updates are in line with Law No. 155 of 2024, which has been in effect since July 2024. They reflect ongoing developments in the insurance and reinsurance sector while ensuring compliance with global best practices.

Companies are also required to conduct client risk assessments, evaluating factors such as age, financial status, investment objectives, and risk tolerance. These assessments must be updated at least once a year. Furthermore, electronic systems should allow clients to track their investments and view any associated deductions in detail.

Investment rules have also been established for contracts related to wealth accumulation plans. Companies must separately manage funds linked to such contracts while ensuring compliance with FRA-approved cost structures and conducting annual risk assessments for clients.

Additionally, all companies must adopt an investment policy approved by their board of directors and, for takaful insurers, their Sharia supervisory board. This policy must align with acceptable risk levels, ensure diversification of investment portfolios, and optimize returns while considering risk factors. The policy must also incorporate scientific methodologies for evaluating risks, measuring expected returns, and conducting stress testing and scenario analysis to assess the company's resilience against financial shocks or economic downturns.

The decision further mandates that companies implement control measures to prevent errors, negligence, and conflicts of interest in investment portfolio management. They must also establish procedures for addressing any conflicts that may arise, ensuring that policyholders' and beneficiaries' interests remain safeguarded. Companies are expected to achieve competitive average returns within acceptable risk levels as determined by their board of directors.

To ensure regulatory compliance, insurance companies must submit their investment policies to the FRA annually and notify the authority of any amendments. They are also required to provide regular investment reports that adhere to the highest governance standards, reinforcing policyholder and beneficiary rights.

The FRA affirmed that these measures are designed to enhance confidence in the insurance market by ensuring the prudent management of insurance company funds, striking a balance between maximizing returns and protecting customer interests.

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