BETWEEN THE LINES

Lebanon 2012 | FINANCE | INTERVIEW

TBY talks to Georges Saghbini, Chairman of Sogecap Liban, on insurance awareness, the legal local framework, and marketing strategies.

Georges Saghbini
BIOGRAPHY
Georges Saghbini joined SGBL Group following university and has occupied several executive positions in the bank. He is currently Deputy General Manager of SGBL, Group CFO, Head of Business Development, Strategy, and Corporate Secretariat, as well as the Chairman of Sogecap Liban.

What is Sogecap Liban's position within Lebanon's life insurance market?

Sogecap Liban is the eighth life insurance company in Lebanon in terms of premium income, based on 2010 figures. Our company has been gaining market share over the past few years and now represents 6% of Lebanon's life insurance market. In 2011, we expect our turnover to increase by 8% as compared to 2010. Sogecap Liban will indeed be registering significant premium growth, whereas figures published by the Association of Insurance Companies in Lebanon reveal that the life insurance market has registered a slowdown in the first half of 2011 as compared to the previous year.

What is your outlook for the increased penetration of life insurance in Lebanon?

We believe the protection component of the life insurance market is likely to enjoy greater market penetration in the coming years. It will be boosted by the expected growth in retail loans. On the other hand, the capitalization component is not directly correlated to any other market, and so its progression is less foreseeable.

What is your outlook for overall premium growth?

The life insurance market is not easily foreseeable. Figures published by the profession highlight significant growth in 2010, followed by a slight deceleration in the first half of 2011. At Sogecap Liban, we expect annual growth in a range of 10% to 12% over the coming years. In the sector, premium growth will depend, to a large extent, on the evolution of insurance regulations. Indeed, the protection component of the insurance market is closely related to the progression of bank loans. Although the latter have been on an upward trend in Lebanon over the past few years, and are likely to keep growing at a good pace, it is worth mentioning that the protection market represents around one-quarter of the life insurance market only. Aggregate premium growth will therefore mainly rely, in the medium run, on the growth of the capitalization market. For that to happen, regulatory changes will have to be introduced.

“We expect annual growth in a range of 10% to 12% over the coming years."

What measures do you feel should be taken to raise awareness of life insurance products among Lebanese consumers?

Most people spend first and save what is left at the end of the month. Few people save first and then spend the rest. On the other hand, the hazards and adversities of real life are so many that only life insurance policies (protection and savings) can minimize them. At Sogecap Liban, the main task of our sales force is to advise our customers properly. Each person has special desires and our job is to provide him/her with the right product. Indeed, at the market level, awareness raising needs to be worked on if the insurance industry is to develop substantially in Lebanon. Several initiatives could serve this purpose; in many countries, such mass-targeting initiatives originate in the industry. In Lebanon, no such actions have been organized to date, and companies run their individual campaigns mostly focusing on marketing their own products.

How do you assess the legal framework for life insurance in Lebanon, and do you feel there are steps that should be taken to enhance the regulatory environment?

The solvency of Lebanese insurance companies would certainly be reinforced if life and non-life insurance activities were separated on the one hand, and if minimum capital requirements were raised to a significant level on the other. On both those issues, the Lebanese market lags behind when compared to OECD countries, not to mention several emerging markets. Nevertheless, Sogecap Liban has anticipated this, and currently has shareholders' equity of around $16 million, thus enabling the company to easily raise its capital if need be by $10 million, a figure that is commonly brought up in the framework of industry discussions. Furthermore, solvency issues could be differentiated between life and non-life activities, as well as according to the type of capitalization products. For instance, signature risk is significantly different for unit-based products, the financial performance of which is managed by an asset manager and the capital of which is not guaranteed by the insurer. The development of the current regulation could strengthen the development of the capitalization market, including complementary retirement insurance. Indeed, we believe developing the relatively weak capitalization market in Lebanon requires regulatory adjustments in some areas. One is the compulsory investment of at least 50% of reserves in domestic assets. No differentiation is currently made for solvability margins required on unit-linked savings, even though the insurer does not guarantee the invested capital. The cost of equity to mobilize is too high and weighs significantly on the performance of these products. However, most importantly, and given that the life insurance market is strongly related to the volume of the capitalization component, fiscal incentives would be of the highest relevance if we were to seek the development of the capitalization industry. Indeed, should the regulatory authorities amend the present legal framework, introducing tax incentives for employers and even for employees, voluntary retirement plans would then benefit from a significant boost. Such an initiative has multiple advantages and leads to a win-win situation down the line. Tax incentives to employers would entice them to support their employees by offering them additional benefits related to their retirement income. Tax incentives to employees would further encourage them to contribute to complementary retirement plans, still weak in Lebanon despite the inefficiency of the national social security system.

What are the comparative efficiencies and strengths of the Lebanese life insurance sector relative to other Arab countries?

The retail life insurance industry in Lebanon, and especially through the banks, is in its early stages of development. It has, however, been growing strongly. In the MENA region, Lebanon has the highest penetration rate of insurance at 2.8% of GDP, the same as Morocco and Bahrain. The insurance density rating is the highest in the region after countries in the Gulf and it is progressing at a strong pace. It has increased by 12% between 2009 and 2010 according to Swiss Re, based on 2010 figures. When it comes to value, the Lebanese insurance market—all branches included—reached a value of $1.07 billion in 2010, of which 24.4% was in life insurance, a share that is significantly higher than the average 17.7% of the MENA region. The life market in Lebanon offers a range of products and services related to capitalization and protection, and it is comparable to European standards.

What specific and unique products does Sogecap Liban offer?

Sogecap Liban has innovated both in protection and capitalization products. With regards to protection, contracts have been made accessible and easy to subscribe to, and regarding capitalization, unit-based products allow the subscriber to take advantage of stock exchange performances. Although we have focused our business on mass production, we also offer some retirement products to corporate customers.

What competitive advantages are created by Sogecap's affiliation with Société Générale de Banque au Liban (SGBL)?

Sogecap Liban's production is exclusively marketed through SGBL's branches, SGBL being Sogecap Liban's main shareholder. Our success is attributable to the strong integration of our processes at the level of product definition and production management.

What is your growth strategy for Sogecap Liban?

Today, the strong growth of the SGBL network, especially following the acquisition of part of Lebanese-Canadian Bank's business, will certainly strengthen production as well as assets under management starting in 2012. In addition, the industry awaits fiscal incentives that would favor capitalization retirement plans, especially since retirement insurance is very weak in Lebanon. As a specialist in life and retirement insurance, Sogecap Liban is well positioned to satisfy the important demand that is likely to follow public initiatives.