LIFE IS A ROLLERCOASTER

Lebanon 2016 | FINANCE | REVIEW: INSURANCE

Unlike many emerging markets, Lebanon enjoys a relatively high insurance penetration rate and strong life segment, buoyed by compulsory lines and bancassurance. Competition remains fierce, however, and reform aimed at encouraging consolidation looks far off.

Lebanon enjoys an insurance penetration rate of 3.3%, or USD557 in premiums per capita. This compares to just 2.2% in the UAE, 3.1% in China, and 6.5% in Germany. Over 2015, the insurance sector grew 3.5%, with the life insurance segment expanding 6% and non-life 2.5%. According to data from the Association of Insurance Companies in Lebanon (ACAL), the life insurance sector is also the most lucrative, posting net income of USD92.3 million in 2014 (65.2%), compared to net income of USD49.3 million in the non-life category (34.8%). The quicker pace of growth in the life insurance area can be attributed to it being a prerequisite for banks to grant loans, especially mortgages. In this respect, bancassurance has been a key factor for growth in recent years, granting bank-owned insurers a strong competitive advantage in a crowded market—as of 2014 there were 34 establishments plying their trade in the life insurance segment, two of which were foreign entities. Conversely, slowdown in the non-life area can be explained by regional turmoil, which has chased away construction activity and pushed up premium costs, leading some sections of society to downgrade their coverage, especially medical insurance plans, or refrain from renewing existing contracts at all, according to a BLOMINVEST BANK report.

Looking further at the country's insurers, some interesting details emerge. According to Executive Magazine, of Lebanon's some 50 insurance firms—sharing USD1.5 billion in gross premiums—none are publicly listed, with some smaller firms lacking the transparency and size usually associated with viable providers. This fact resulted in a special note in a World Bank report from December 2013, where it was stated that, “Small insurers, family owned and operated, might well be more like family brokerage firms in other jurisdictions, with limited risk retention and a focus on simplest low-risk products." Furthermore, BLOMINVEST BANK suggests that “fierce competition in the market from illegal local and foreign insurers… hindered the sector's performance in 2014." This reality would point to a market ripe for consolidation, yet an antiquated insurance law almost 20 years old remains inadequate to promote the M&As the sector dearly needs. According to the law, the minimum capital requirement stands at USD1.5 million, a figure that some industry insiders believe should be at least USD10 million. Back in early 2014, local English-language paper The Daily Star suggested that a stagnating economy could initiate a burst of consolidation, with four smaller insurance firms rumored to be considering sellouts. Fast-forward to 4Q2016, however, and the landscape remains relatively unchanged.

In that respect, Lebanese insurers are working overtime to maintain profits, especially in light of challenges relating to the Syrian crisis. Speaking to TBY, Georges Matossian, General Manager and Vice President of Al Mashrek, the ninth-largest non-life insurance provider in 2014 with USD38.3 million in premiums according to BLOMINVEST BANK, said, “We have seen a steep decrease in the marine insurance segment due to the Syrian conflict, which hindered former export activity to Syria, Jordan, Iraq, and other markets. With the evaporation of this trading route and the position of Lebanon as a hub, insurance companies have lost an important part of their business in the local market." That said, he remains upbeat on the prospects of the sector, suggesting that “we cannot deny that Lebanese insurance companies have found a way to remain resilient no matter how dark the panorama is." Al Mashrek has also sought to be more accommodating to long-term clients that have struggled to pay premiums in recent years. At the same time, the insurer has worked hard to “increase the percentage of collection of our premiums and to lower the deficit of collection." Another challenge highlighted by Matossian is the introduction of international compliance regulations, such as Basel III, which pushes banks to minimize their shares in their own insurance operations in order to encourage more aggressive market behavior. Non-bank insurers like Al Mashrek, then, can be left “in a more vulnerable position," said Matossian. Lebanese firms are heading abroad, however, a reality that could suggest a desire to spread risk. “Al Mashrek invested in a new company in Egypt called United General Insurance as a major shareholder," Matossian told TBY. “It is a business that looks promising, and we plan to build upon it. Of course, the Egyptian market is completely different from the Lebanese market; it is a huge market with lots of potential." That potential, it seems, also spreads to micro insurance, which, Matossian tells TBY, “can be successfully applied in Egypt." AROPE Insurance, the eighth-largest non-life insurer in 2014 with premiums of USD56.6 million according to BLOMINVEST BANK, also has operations in Egypt, as well as Syria. “Many Syrians used to buy insurance abroad as competition in their homeland was non-existent. That changed when we moved there and offered a new range of services to people. So far, we have done well in Syria despite the slowdown the conflict presented, as we keep our branches open and they keep doing business in the country," said Fateh Bekdache, Vice Chairman & General Manager of AROPE Insurance, adding that “once peace returns we await big opportunities in Syria."
Moving forward, and without an update to the insurance law, one avenue of potential growth is new products. According to Executive Magazine, some opportunities have so far been passed up by insurers in the country, such as insurance “in case of riots and civil commotion or unrest, kidnap and ransom policies, or liability insurance for directors and officers of companies." Elsewhere, though, micro insurance is a developing avenue, with firms such as AROPE Insurance launching a micro life insurance offering available via mobile phones to Lebanese citizens and resident foreigners. The limited size of the market in Lebanon does somewhat limit the ability for growth in this area, although as the younger generation begins to take insurance more seriously—currently the bulk of personal insurance is purchased by older heads of households—it is likely that both micro insurance, and digital platforms for its distribution, will become more popular.