RISK & REWARD

Lebanon 2013 | FINANCE | REVIEW: INSURANCE

Political and economic uncertainty in the region are pushing insurance companies to face market realities, and while family-owned businesses have resisted consolidation in the sector, they have nowhere to turn and may opt for a buyout rather than risk goi

The insurance industry in Lebanon has muddled along for years. More than 50 companies, many of them family-owned enterprises, serve a population of four million people. Only three or four reinsurance companies operate in Lebanon and the 10 largest insurers hold 75% of the market, according to the Association of Insurance Companies in Lebanon (ACAL).

In Europe, insurance companies own banks, but in Lebanon it's the banks that buy into insurance companies. In 2012 Bank Audi sold its majority stake in Lebanon bancassurance provider LIA Insurance, signaling a retreat from the sector.

The smaller players have minded their own business and resisted calls for consolidation, thwarting efforts toward merger and acquisition. But tough times at home and all around the Middle East and North Africa are pushing the industry toward the consolidation that the banking sector in Lebanon underwent more than a decade ago.

SECTORIAL IMBALANCES

Insurance companies in Lebanon also have to address imbalances in the sector, lopsided with medical premiums that account for one-third of total premiums. Walid Hallassou, General Manager of GlobeMed, told TBY that of Lebanon's population of four million, only some 10% have private insurance and that as the state pays for less than one-third of all healthcare costs, while the private sector pays around 73%.

“The tariffs they have in place at the hospitals are not good, which forces the private sector to pay," said Mr Hallassou. “Again, this puts us in a role of responsibility to help balance the act with whatever means available… of not only playing the role of claims manager, but of elevating the standards of the whole healthcare industry in Lebanon."

According to the latest data available from ACAL, up to the 2Q2013, of all insurance products in Lebanon, life premiums comprised 27.2% of the market and non-life premiums were led by medical, with 32.6%. Of the other non-life products, motor premiums had a 21.9% share, followed by fire insurance at 7.4%, workmen premiums at 3.0%, and cargo premiums at 2.4% of total premiums. The only category that declined in sales from the previous year was cargo, down 2% from the same period in 2012.

Lebanon's insurers do not operate in a vacuum—they are part and parcel of a financial services industry that is weathering contrary winds of political and economic uncertainty, testing the famous Lebanese capacity for resilience.

In its September 2013 report, ACAL claimed that, “The second quarter in 2013 brought reassuring underwriting results in an overall stable but vulnerable economic climate. Premiums for the first six months in 2013 were reported at $739 million, up 7% when compared with the same period in 2012."

However, The Daily Star in September quoted ACAL President Assad G. Mirza as saying, “July and August were very bad... and many insurance companies complain that the only phone calls they are getting are those related to claims."

Assad G. Mirza, who also is Chairman of Capital Insurance, told TBY, “When you are in the finance business you have to make a plan for the next three-to-five years. In Lebanon, now, we cannot do this because sometimes our projections get put on hold by the economic crisis or war. We do a projection for these things, for instance, expanding to the south side or to the north side; but, with this situation, there is no way we will do this. Some companies are thinking now that it is better to leave Lebanon, but where?"

Quasi-public lender Kafalat, three-quarters owned by the National Institute for the Guarantee of Deposits and the remainder by 50 Lebanese banks, reported lending to small and medium-sized businesses down 21.4% in the first eight months of 2013.

POLITICAL REALITIES

Unfortunately, the coalitions have still not been able to form a new government following the Cabinet's resignation in March 2013. A Citigroup report in October said that the chances of forming a new Lebanese government soon are not improving as the coalitions hold opposing views on basics such as the allocation of ministries, the number of ministers each party would designate, and general government policy.

Fateh Bekdache, Vice-Chairman & General Manager of AROPE Insurance told TBY that people perceive insurance as a burden or a tax to pay, rather than a way to protect themselves. “Investing in educating people about insurance is a big role that our government, the ICC [Insurance Control Commission], and ACAL should play in order to better position the market," said Mr Bekdache.

Development of the regulatory environment is handicapped by the lack of government action. The insurance industry does work in a global environment, however, so it is left to groups like ACAL to foster innovation—like a central database to assess client risk—and agreement on capital management and risk frameworks for insurers. Critics assert that the minimum capital requirement of $2 million to enter the industry in Lebanon is too low—another regulatory challenge awaiting the new government.

ACAL cites the latest edition of Swiss Re Sigma's World Insurance Report, in which Lebanon is listed with insurance penetration of 2.85%, in 48th position globally and ahead of all Arab markets except Morocco (ranked 47th). Beirut has a history as a financial center and the Lebanese are sophisticated consumers, so some voices counsel patience and quiet optimism for the sector.

Fidelity Chairman Ricardo M. Sleiman shared with TBY his practical view of the insurance sector in Lebanon: “An insurance company is like a supermarket or a restaurant; people have to buy necessities, they also need to insure their cars, their home, and their business. It is simply becoming a necessity."