Best’s Special Report: Lebanese Insurers Continue to Demonstrate Resilience Despite Challenging Operating Environment

LONDON: BUSINESS WIRE/AETOSWire: Insurance companies in Lebanon continue to operate in a challenging environment, with Lebanon’s history characterised by social and political divides, and the country presenting high levels of economic, political and financial systems risks, according to a new report by A.M. Best. Furthermore, market fragmentation has led to significant competitive pressures – particularly on the motor line of business, which has suffered high combined ratios in the past five years. Pressures on profitability have been accentuated further by competitive distortions, with mutual insurers (caisses mutuelles) that benefit from not being supervised by the insurance market regulator, the Insurance Control Commission (ICC), proposing aggressive rates, especially on group medical insurance.

The Best’s Special Report, “Lebanese Insurers Continue To Demonstrate Resilience, Despite Challenging Operating Environment,” states that against the background of difficult wider economic and political conditions, the Lebanese insurance industry has demonstrated resilience and has continued to grow, albeit at a declining rate. Despite being a fragmented and overcrowded market with significant competition and soft rates in personal lines, it has remained profitable.

Alex Rafferty, senior financial analyst, said: “The companies A.M. Best rates in Lebanon have generally maintained solid levels of capitalisation on a risk-adjusted basis. Likewise, the market as a whole also exhibits an average solvency coverage ratio comfortably in excess of local capital requirements. Furthermore, balance sheet strength is aided by prudent investment allocation, with Lebanese insurers favouring highly liquid investment portfolios, weighted toward cash and short-term deposits.”

The report adds that regulatory solvency is high on the agenda of industry bodies, with the ICC advancing a project to introduce a risk-based capital framework that A.M. Best views positively, as more stringent regulatory solvency requirements would likely lead to increased financial strength of the industry.

Ghislain Le Cam, director, analytics, said: “A.M. Best expects that requirements for strengthened governance frameworks would accompany solvency reform, in line with what has been observed with the implementation of the Solvency II regime in Europe. These would complement more vigorous capital regulation with enhanced internal standards and capabilities within insurance companies, notably as regards to capital and risk management.”