Lebanon’s insurance industry survives war intact

Surprisingly robust, it compares favorably with other countries in region

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Lebanon’s insurance companies passed through the 2006 war between Israel and Hizbullah without having to pay crippling amounts for war-related claims, because this type of coverage is not a usual purchase option. (In any country, a house caving in beneath the impact of a force majeure is not calculable, and ineligible for cover under a standard home owner’s policy.)

In fact, the latest global insurance industry research by reinsurance giant Swiss Re positions Lebanon at a total premium volume of $664 million, up from $580 million in 2004, and an insurance density—the amount per capita invested in premiums—of $185.6, distributed at a ratio of 70:30 between general insurance and life insurance.

This compares favorably with insurance density of $54.2 in Jordan, $57.1 in Saudi Arabia and $113.7 in Oman. Lebanon is on equal footing with Kuwait ($185.5) in terms of overall insurance density, however the distribution between general and life insurance in Kuwait leans significantly more towards general insurance. With $414.2 and $442.3, the UAE and Qatar showed far higher insurance density than Lebanon but in terms of life coverage, Lebanon is still stronger than Qatar, whose citizens spent just $22.2 last year on life products, most of which are shunned under Islamic religious law.

Insurance growing globally

On global scale, insurance premiums last year amounted to $3.426 trillion, an increase of 3.9% in real terms from the previous year. Industry profitability in the life segment improved compared with 2004 and general insurance remained very profitable, according to Swiss Re. The reinsurance company added that non-life premium growth in 2005 was slow and ranged below GDP growth in most countries.

Swiss Re computed an overall premium volume of $16.3 billion for the Middle East and Central Asia in 2005, up 5.8% on the previous year. The realm accounted for a measly half percent of the world insurance market, even though Swiss Re conjoined the two geographic areas in its statistics. With 1.45% insurance premiums as percentage of GDP, it was the tail runner of all regions listed in the report in terms of insurance penetration. Lebanon’s 2005 insurance penetration was quoted as 3.15%.

On the national level, the November 2005 research figures by Swiss Re assess Lebanon’s premium production at $577 million in 2004, comprised of $180 million in life and $397 million in non-life insurance. With an average of 15.5 % annual growth over the five years 1999 to 2004, the 9.3% inflation-adjusted increase between 2003 and 2004 represented a decent result for the year 2004, and expectations for 2005 had initially been for good continued development.

This performance is not bad by regional standards, but it means that the country’s insurance industry is still not on a growth trajectory that would put it in reach of an adequate net for protecting society and individuals against calculable risks.

It should be added here that Saudi Arabia has (albeit with a delay of about 30 months since the presentation of its advanced insurance law) recently issued several licenses for insurance companies to operate in the kingdom and can expect some real sector growth. Syria is another country where authorities moved ahead with licensing new insurance companies and three Sharia-compliant insurance firms are scheduled to go operational there early next year. All three have been established as joint venture companies between Gulf-based companies and Syrian shareholders.

As for the inactive side of the Lebanese insurance industry in 2006, it suffices to say that insurance industry association ACAL is still advertising Beirut Rendez-Vous, a regional gathering of industry members, as “upcoming” on its website: the event actually took place—and flopped badly—in the spring of 2005.

Sector survives political tumoil

But under Lebanon’s current political climate, it is admirable enough that a sector such as insurance can sustain its position, given the suppressed purchasing power of individuals and the cash flow situation of many businesses, whose cash reserves have been depleted by the summer war and the economic repercussions of the fourth-quarter political crisis, which many predict will lead to serious debt rescheduling issues and a wave of bankruptcies in the first quarter of 2007.

From a GCC vantage point, the Lebanese insurance industry appears advanced, well-regulated and overall more open and private sector-driven than insurance sectors in other Arab economies. However, not terribly much is known about the Lebanese insurance sector outside a narrow group of local and regional specialists. Information circulating regionally and internationally about the sector relies predictably on reports produced by these specialists and often contains dated and vague performance numbers, with unaudited 2004 results being cited. The sector also still requires internal development, in order to march forward into alignment with global best insurance practices.

Thus, when Kuwait-based Global Investment House issued a report on the Lebanese economy in November, it said, “We expect the insurance sector [in Lebanon] to grow in the future, provided we see political stability in the country and thriving economy; because we see a great scope in terms of market for the life insurance and until we have stability in country and generally well going economy, it’s hard to expect to have higher sales of insurance policies.”

It carries a very limited risk indeed to say that these issues will be as valid in 2007 as they were in 2006.