FRA sets new limits on insurance companies’ investments to boost market stability

Cairo – February 12, 2025: The Financial Regulatory Authority (FRA) has unveiled new regulations governing the investment allocations of insurance and reinsurance companies. The move is part of broader efforts to enhance financial stability and optimize investment efficiency in the sector.

Under the newly introduced rules, insurance and reinsurance companies are required to allocate at least 5 percent of their free funds to open-ended funds investing in equities listed on the Egyptian Exchange (EGX). Additionally, a single fund investment cannot exceed 5 percent of an insurer’s paid-up capital or 15 percent of the fund’s total assets, whichever is lower.

Beyond the allocation from free funds, the FRA now mandates that insurance firms invest at least 2.5 percent of their paid-up capital in open-ended funds focused on EGX-listed stocks. The same limits apply, ensuring no single fund investment exceeds 5 percent of the insurer’s paid-up capital or 15 percent of the fund’s total assets.

Companies have the option to directly invest in listed stocks instead of using funds, provided they obtain FRA approval. This alternative offers insurers greater flexibility while still meeting regulatory requirements.

The FRA has set a ceiling on overall stock and fund investments. Insurance and reinsurance firms may not allocate more than 30 percent of their total investment-designated funds to these asset classes. Furthermore, investments in commodities and metals—whether through funds or other instruments—are capped at 5 percent of total investments.

The revised framework permits life and personal insurance companies to invest up to 10 percent of their allocated investment funds in real estate investment funds (REIFs). Meanwhile, property and liability insurance firms are subject to a 5 percent cap on such investments. As with other asset classes, the investment in a single REIF cannot exceed 5 percent of an insurer’s paid-up capital or 15 percent of the fund’s total assets. However, these restrictions do not apply to REIFs that insurance companies helped establish.

The new regulations draw a distinction between free and allocated funds. Free funds represent shareholder equity used for general business and investment purposes, while allocated funds are the reserves set aside to cover future policyholder claims. These guidelines ensure a balanced investment approach that mitigates risk while protecting policyholders.

Insurance companies have a six-month window to comply with the new thresholds. However, firms must immediately cease making additional investments in asset classes where they have already exceeded the newly imposed caps.

To reinforce governance and oversight, the FRA has introduced stringent compliance requirements. Companies must establish robust control systems to detect and prevent investment errors, ensuring alignment with regulatory expectations. Additionally, insurers are required to submit their investment policies to the FRA annually and promptly report any policy amendments.

The FRA’s latest move follows last month’s amendments to private insurance funds’ investment rules, which aimed to diversify their portfolios and improve financial resilience. These continuous regulatory updates reflect the FRA’s commitment to strengthening Egypt’s insurance industry and safeguarding stakeholders’ interests.