The political and economic situation in Lebanon continues to pose challenges but the insurance industry remains a bright spot amid the tough environment, demonstrating resilience in adapting to conditions of instability.
The Lebanese insurance industry generated total premiums of US$1.52 billion in 2015, up 3% y-o-y, according to the latest figures released by the Association of Insurance Companies in Lebanon (ACAL). In comparison, total premiums grew by 4.5% y-o-y to $1.48 billion in 2014.
Despite the slower growth in 2015, the gain in premiums outpaced the country’s economic growth. According to Lebanon’s central bank Banque du Liban, political, social, and security challenges have made it more difficult for the Lebanese economy to bounce back to its desired levels, with real GDP growth rate of less than 1% and inflation close to zero in 2015.
Persistent regional and domestic political instability has been weakening Lebanon’s economic performance. In particular, the spillover from the Syrian crisis, now in its sixth year, continue to impact growth. According to the World Bank estimates, Lebanon has incurred total losses of $13.1 billion since 2012, of which $5.6 billion was in 2015 alone (over 11% of GDP).
With Lebanon’s services-oriented economy highly sensitive to political instability, traditional growth drivers such as construction, trade, real estate and tourism are losing steam. Amid the challenging environment, non-life premiums grew by only 2% y-o-y to $1.06 billion last year, compared to a 4% yearly growth to $1.05 billion in 2014. In fact, 2015’s growth rate was the slowest since 2010.
Business performance
Despite the tough business environment, 29 of 45 non-life providers posted a yearly increase in premium collections in 2015, while 15 registered a decline and one stagnated, according to data compiled by Al Bayan magazine. In comparison, a total of 19 out of 34 providers of life insurance posted increases in premiums while 13 registered declines.
Within the non-life segment, engineering business registered the highest growth rate of 31% to $9.9 million. Life and motor insurance increased by 7% and 5% to $462.8 million and $351.0 million, respectively, while both medical and fire insurance grew 3% to $441.3 million and $109.5 million, respectively Cargo insurance suffered the steepest decline of 22% in premiums, while the number of such contracts dropped by 11% to 78,236 and the average premium per contract fell by 12% to $453.
The movements in premiums may be considered by some as unremarkable for an emerging economy, but it deserves to be recognised that the growth rates are very respectable in the context of the economic pressures reflecting regional uncertainties, said Mr Lucien Letayf Jr, CEO of Libano-Suisse.
The insurance sector is “one of the primary pillars” of Lebanon’s economy, due mainly to a high penetration rate and density relative to the region, said Mr Fateh Bekdache, General Manager of AROPE Insurance.
Fragmented market
With over 50 insurers operating in Lebanon, the market is considered highly saturated due to the large number of companies and considerably small population of about six million. The number of smaller players can be attributed to the low minimum capital requirements that were a legacy of the 1999 insurance law. Despite continued calls for consolidation, no mergers have taken place over the past few years.
In terms of the sector’s structure, no company holds more than 10% of the total market share. Allianz SNA, with premiums of $123.9 million, holds 8.13% of the market premiums, while Medgulf came a close second with 7.53%, followed by MetLife’s 7.48%, Bankers’ 7.14% and LIA’s 6.46%. Another three companies – AXA Middle East, AROPE and Libano-Suisse – have market shares of 6.33%, 6.25% and 5.26%, respectively. The remaining companies hold no more than 5% each of the pie.
Due to the high level of competition, numerous companies seek to underwrite on the basis of aggressive pricing strategies, while others take a longer-term view by betting on product offerings and digital platforms.
Mr Bekdache said: “The prevailing price competition sheds the light on the service factor and this is how AROPE distinguishes itself from competition, retains existing clients and acquires new ones, thus increasing its market share. For us, customer service is vital, backed by a conservative and smart underwriting policy.”
He added: “Our sector is mobile, and is bound to pursue the changes and new needs arising from technological development. Thus, opportunities are there, awareness is increasing, and with the proper legislative and regulatory framework, the future seems bright for our industry. Above all, security is essential for the prosperity of the Lebanese insurance sector.”
Collective efforts to boost growth
As the second-most important segment of Lebanon’s financial economy after the banking sector, insurance companies and other institutions have stepped up efforts to boost the standing of insurers, vis-à-vis other sectors. For instance, ACAL has been pushing for an increase in insurance awareness among national policymakers and corporate decision makers.
A dynamic free-market economy like Lebanon will always produce new opportunities for the business community, including insurance, Mr Letayf Jr said. There are many initiatives surrounding entrepreneurship, driven by the investment support that the Central Bank provides to fund startups and knowledge economy enterprises, he added.
“We also see the positive impact of stimulus measures, also driven by the Central Bank, that support crafts, green industries, and the housing market,” he noted, adding that during a recent visit to Lebanon, Dr Jim Yong Kim of the World Bank and Mr Ban Ki-Moon of the United Nations reaffirmed commitments to financing development programmes in the country through soft loans of about $1 billion.
“Naturally, all these domestic and international initiatives bode well for economic stakeholders and are accompanied by risk management and coverage needs which the insurance sector is optimally equipped to help handle.”
Oil & gas opportunities
The Lebanese insurance industry is also hopeful that its untapped oil and gas reserves may offer some uplift. Although proper exploration of the possible reserves is being stymied by politics, estimates have suggested revenue from the reserves could yield as much as $600 billion.
There are certainly opportunities, provided they are well-managed and controlled, Mr Bekdache said, pointing out that ACAL has already started forming an assembly of insurance companies aiming to prepare the sector for the next phase.
He added: “It is a new industry, a big one of course, and the insurance sector will definitely be involved and concerned. Thus, a consortium of companies is essential to be able to bear such a big portfolio, especially during the oil extraction phase. The topic is under close study now, while special seminars and workshops are being organised to prepare the ground for the execution phase. This comes in parallel with a low price challenge and persistent instability testing the waters of the MENA insurance market in general, while Lebanon must be very vigilant in learning lessons for the near future.”
Mr Letayf Jr noted that the Lebanese insurance sector has been engaged in discussions with the national authorities entrusted with oversight of oil and gas exploration efforts since last year. However, international price developments in energy markets and the lack of political improvements in Lebanon have affected near-term exploration activities. “Important legal decisions are still outstanding. In light of this, we are not over-enthusiastic and assess the outlook for new insurance opportunities with an element of cautiousness,” he said.
Not all gloom
Overall, the year 2015 was not an easy one for the Lebanese insurance industry, and it looks like challenges will continue in 2016 with the ongoing twin threats of economic and political uncertainties.
“This year will be a tough one of course, with all the local and regional challenges remaining,” Mr Bekdache said. AROPE, he added, is “constantly innovating by proposing new solutions, and improving customer service”.
Libano-Suisse, said Mr Letayf Jr, is focused on “achieving good results and will remain in pursuit of high economic performance. This means to say we will certainly act with decisiveness when opportunities for expansion of our market open up and make economic sense for our bottom line, but we will not tweak or modify our strategy to increase market share at high cost.”
He added that the company is preparing to enter the Iraqi market by the end of 2016. “We have identified good opportunities which we will capitalise on.”
Concluding, he said: “We are confident that the Lebanese insurance sector overall will manage the global risks and interest rate issues that the remainder of 2016 might bring.”
The Lebanese insurance industry has, over the years, earned a reputation for being resilient. This remains the case today as the tough operating environment has only slowed down its pace but not disrupted its ongoing growth.