In from the dark

The most significant innovation in the Lebanese insurance industry this year is transparency in on-time delivery. For the first time in roughly 60 years of collecting premiums and paying claims, the majority of insurers have made their quarterly headline numbers available for evaluation.

Starting with the first quarter 2011, Lebanese insurance industry data is published in a statistical review by the Association des Compagnies d‘Assurances au Liban (ACAL). They cover overall trends for premiums, claims and ratios as well as trends per business line — including life insurance, motor and others — for a total of nine areas of insurance activity.

“The insurance control commission at the Ministry of Economy and Trade started publishing the annual report on the insurance sector in 2005 and it was an important initiative,” said Jamil Harb, secretary general of ACAL. “However, we realized that it would be better for the companies and the public interest to gain faster access to this statistical information, so the ACAL Board proposed to the member companies to find an independent and trustworthy company to carry out the publication of the quarterly report.”

Harb told Executive that ACAL committed itself to the project as the two-year time lag in issuance of the official reports greatly reduced the usefulness of the information. The association commissioned reputed local auditing firm Fiduciaire du Moyen Orient to provide the analysis of data, while guaranteeing the full confidentiality of it to each individual company.

According to second-quarter data, Lebanese insurers underwrote risks represented by $623.3 million in gross premiums in the first six months of 2011. This compares with $1.11 billion in premiums in the whole of 2010 and when compared with the first six months of 2010, represents a year-on-year growth of 17 percent.

The trials of transparency

It is a common problem in international insurance markets that sector players are often more reluctant than other financial companies to disclose their information. Underwriting performance in terms of gross premiums is generally easiest to obtain, but an insurance market’s performance can really only be understood if information is available on aspects such as the net premiums after cession of risks to reinsurance companies, technical reserves, ratios and other issues.  

On the upside of transparency, however, sector companies can only assess their real positions vis-à-vis their peers and the actual market trends if comprehensive data is available quickly. Lebanese insurance leaders have so far reacted well to the first two editions of the report.

“It definitely helps to have the statistics,” said Fateh Bekdache, general manager of Arope Insurance. Before the introduction of the reports by the association, sector companies were limited to data the Arabic business magazine Al Bayan collected annually from the companies, and Bekdache noted that this was not always reliable given that they were unaudited.

Edward Traboulsi, general manager of Assurex Insurance, said statistics help to benchmark it against its peers. He hailed the reports as “an excellent tool which we didn’t have before. There are so many questions that are left unanswered if you don’t have benchmarking statistics.”

Claims & benefits 2011

The report for the second quarter of this year showed that Lebanese insurers paid out $258.5 million in claims and benefits to their policyholders by June 30. Like premiums, claims and benefits were up from the same period in 2010. However, the rate of increase in claims was 10 percent, notably below the rate of premiums growth. The year-on-year increase in claims and benefits at the end of the first quarter stood at 4 percent.

The two dominant business lines in terms of total turnover in the first half of the year were, as usual, medical and motor insurance, 33.4 percent and 25.7 percent, respectively. Life insurance was the third largest sector, representing 23.1 percent. The combined market share of the three lines left the other lines in general insurance — from workmen’s compensation and fire to marine and engineering — vying for less than one fifth of the total premiums pie.

The data on paid claims shows that motor and medical claims represent nearly 75 percent of everything paid out by insurers. The gap between the shares in total premiums and total claims payments for the two lines was thus about 15 percentage points in favor of claims. While illustrating the extreme importance of the two largest business lines for the industry’s revenues, the overweight of motor and medical claims in percentage terms also underscores the volatility of those lines.

In the smaller, more profitable lines such as fire, marine cargo and hull, engineering and construction, general liability and others, the statistics illustrate that these lines — due to their small size of total premiums — can be exposed to significant fluctuations on the claims side when just one major case occurs, such as an industrial fire destroying a multi-million dollar manufacturing facility.

The analysis of the insurance sector still has lots of room for improvement. Part of this evolution will occur naturally, as with the flow of time the issuance of reports will make the information published in the first two quarters more relevant and comparable.

Another value boost will come from increasing participation from insurance companies that have committed themselves to provide the quarterly information on a voluntary basis. The second-quarter report already reached a comprehensive 95 percent coverage of all non-life premiums, based on data reported by 42 of ACAL’s 53 members. However, the absence of one major life insurer’s data meant that the report’s figures captured a lower 80 percent of the activity in that sector.        

Insurer investments

One area in which the association is currently working to extend the statistical report’s coverage is in gaining a view of investment portfolios which insurance companies hold. The importance of insurance companies as institutions in financial markets is directly related to their muscle mass as investors. Wielding this investment power essentially on behalf of their policyholders, insurance companies provide a component of stability to both financial markets and society. 

The size, allocations to investment classes and profitability of the insurance sector’s investment portfolios are thus of interest to the public as indicators of the companies’ financial health. The portfolio data is also of interest to professional analysts across the entire finance industry as, for example, growing investment power by local insurance companies could provide a telling hint on the possibility of seeing more liquidity in Lebanon’s financial and equity markets.

Investments by insurance companies in relation to their insurance business play a preeminent role in developed insurance markets and estimates are that sector companies in Lebanon invest more than two dollars tied to their life insurance business for every dollar they invest related to non-life business.

Inclusion of insurance sector investment portfolio data overall, and their correlation to each business line, is on the agenda of the ACAL quarterly report for upcoming editions. According to Harb, the compilation and analysis of this data is still being worked out, as extrapolations of totals are not possible when analyzing investment activities that are distinct for each company.