An awfully quiet year

Sector saw limited growth in 2016

When compared with the banking sector and the initiatives taken by Banque du Liban (BDL), the year was unnervingly quiet for the country’s insurance industry. Preliminary information on the performance of insurance companies suggests that the 4 percent growth in gross premiums to $1.2 billion at the end of the third quarter was low when compared with growth rates achieved in most of the past ten years. However, growth was not devastatingly low when one compares it to the inflation rate in the Lebanese economy, which edged into positive territory this year, but was too small to provide the economy with growth incentives.

According to figures by the Association des Compagnies d’Assurances au Liban (ACAL), premium growth rates in several lines of non-life insurance were negative at end of September 2016. Indications of positive premiums growth came only from two small business lines, miscellaneous and public liability insurance and from motor, medical, and life premiums. Granted, the latter three lines are the high-volume lines and represent some 93 percent of total insurance sector turnover in 2016, but at growth rates of 7 percent for life insurance – which includes savings contracts – and 6 and 3 percent, respectively, in motor and medical premiums, no single coverage line or subsector of insurance was reporting figures that could be described as encouraging. 

The impression of underwhelming growth in the sector and its link to the wider economy was corroborated by Karim Nasrallah, general manager of the Lebanese Credit Insurer (LCI). “The problem with Lebanon in 2016 was that there was no business growth, and [specifically in the area of] Lebanese export insurance because there is really no growth in exports,” he tells Executive on the sidelines of a regional conference.

Notably however, regional export and trade related problems are not limited to this country, and Lebanon in some respects performs well. “The [Lebanese] market behavior in terms of payments, which is what we are exposed to, is actually quite good. There is perhaps some greater delay of payments, but there is no increase in the rate of payment defaults or anything such, unlike some countries in the region. In some Gulf countries, things have been much more volatile and we had more claims due to defaults. Moreover, the business environment is challenging everywhere in the region. In Egypt, you have the currency situation, in the UAE, Qatar, Kuwait and Saudi Arabia you have the problem of commodity prices, which is impacting public spending and liquidity. So Lebanon is not the only country impacted by problems,” he explains.

As an insurer with operations in several Middle Eastern countries, LCI, which is the first non-state affiliated credit insurance provider in the entire region, is taking a more holistic view on regional issues and also can compensate for lack of business growth in one country with acceleration of performance in another. While Nasrallah likens the Lebanese businesses’ need for political stability prior to the presidential elections to a need for oxygen when suffocating, he can afford to be upbeat about the future. “LCI was growing outside of Lebanon in the past two years, underwriting exports and domestic trade in countries such as Jordan, UAE, and Saudi Arabia, but [we] hope that growth will return to Lebanon in 2017. You need stabilization to grow. I am optimistic, otherwise we should pack up and go,” he says.   

Many insurance companies active in other business lines, specifically local companies without global or regional affiliations such as those enjoyed by Allianz SNA or AXA, do not have the option to wait out downturns in the Lebanese economy. By conventional business logic, Lebanon should see a wave of mergers and acquisitions in insurance, including consolidation among local providers with turnovers near the low end of the sector’s income range. However, such moves have still not yet been reported in 2016 and the ACAL, according to its website, continues to have more than 50 member companies.

Besides their regular business activities – subdued as they were because of inertia in Lebanese politics and the economy – insurers mainly stood out through social activities, such as gathering for the 25th anniversary celebrations of GlobeMed Group, a third-party administrator affiliated with several Lebanese insurers. The highlight of the year in this regard was the hosting of the 31st Conference of the General Arab Insurance Federation (GAIF) in Beirut at the end of May.

Topics of interest at the conference were the debate over oil and gas related insurance services by Lebanese providers, which is an ongoing concern in the local insurance industry, the discussion of insurance pools (collective funds for coverage of specific risks) in several fields, including oil and gas, and the exploration of digitization as the main challenge that looms over insurance and reinsurance companies worldwide. A further conference on the digitization issue is planned to be held under GAIF auspices in Beirut in mid-2017. 

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years.

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