As if last August’s Beirut blast were not enough, Lebanon also suffered a currency crisis and the effects of the COVID-19 pandemic. France’s financial prosecutor has opened an investigation into central bank governor Riad Salamé for illegal acts. And Lebanon’s borders are being pressured by huge numbers of Syrian refugees.
In the middle of all of this, the insurance and reinsurance sector in the nation is trying to get on with the business of rebuilding and getting back to normality.
To find out how all this turmoil has affected the regulation of insurance, we spoke to Lebanon minister of economy and trade Raoul Nehme about how the ministry and the Insurance Control Commission (ICC) has responded to the continued series of disruptions that it has witnessed in the recent past.
The last 12 months
We asked the minister to tell us about any significant changes to insurance regulation in Lebanon in the last year.
“Following the spread of COVID-19 in Lebanon, in April 2020 the Ministry of Economy and Trade issued a decision requiring all the general conditions of health insurance contracts to include cover for epidemics and pandemic diseases,” said Mr Nehme. “The ICC has reviewed the general conditions for all insurance companies offering health insurance to ensure they are providing proper coverage for epidemics and pandemic diseases.”
The ICC also responded to the Beirut port explosion and issued several regulations and directives as a direct result. These included the issuing of:
- A circular requesting all insurance companies to provide the ICC with information related to the explosion and the information is posted on the ICC website on a regular basis. The latest issued report is for the information as at the end of April 2021 - with the report dated at the end of May 2021 to be published soon. The estimated cost of insurance claims amounted to LBP1.57tn ($1.04bn) with reinsured losses totalling LBP1.482tn. The amount settled by insurance companies is LBP136bn.
- A circular allowing insurance companies to exempt claims related to Beirut port explosion from the assessment of the premium deficiency reserve.
- A decision reducing the loss-adjustment expenses reserve on Beirut port explosion claims from 3% to 1%. The ICC has also allowed insurance companies to record reinsurance share on this reserve on the portion that refers to the explosion.
And there were other pragmatic measures taken too. “Following the deterioration of the fiscal and economic conditions in Lebanon, the ICC has issued a circular requesting all insurance companies to record an impairment loss on their exposure to local banks of a minimum of 10%,” said Mr Nehme. “In addition, all companies exposed to Lebanese government sovereign debts and central bank certificates of deposits are requested to record an impairment loss of 45% on their exposure,” he said.
As Mr Nehme outlined, there were further measures still. “The ICC has amended the constraints to compute admissible assets used to cover technical reserves for the purpose of issuing the attestation by allowing a higher percentage to admit real estate investments and reinsurance share in technical reserves for investment-grade credit-rated reinsurers,” he said.
“The ICC has also allowed insurance companies to admit deposits in investment-grade credit-rated foreign banks and permitting the ICC to have access to these funds in case of insolvencies,” said Mr Nehme.
Licensing loss adjusters
The minister of economy issued a circular requesting all local experts and international loss adjustors to obtain the necessary license to conduct their activity in Lebanon.
The minister provided licenses for two international loss adjustors and set the process of licensing of local experts and loss adjustors in coordination with the competent judicial and administrative authorities following every line of expertise. So far the ICC has received 112 licensing files from local experts.
IFRS17 and capital adequacy
Maintaining adherence to global insurance regulatory norms under such trying circumstances would be a challenge for most regulators, and the ICC has paid particular attention to the implementation of IFRS17 and new capital adequacy standards in Lebanon.
“The ICC will shortly issue directives on the adoption of IFRS17 - Insurance Contracts and IAS29 - Financial Reporting in Hyperinflationary Economies,” said Mr Nehme. “A roadmap will be set on the adoption of IFRS17 whose effective date is 1 January 2023 – and adoption for reporting year 2022 is required so that it can be used as a comparison year. The roadmap will include several phases - from gap assessment to financial impact analysis to systems design and human resources and, finally, implementation.”
But there is no escaping the fact that the current political situation in Lebanon will not help matters when it comes to implementing the new standards.
“The current political turmoil and the lack of functional government have hindered the progress of several regulations - mainly the introduction a new insurance law, which we have started working on, that gives the ICC the authority and the independence that it needs to execute its role properly,” said Mr Nehme. “The law will also introduce new risk-based capital adequacy requirements in line with international practices and enforce governance requirements on insurance companies.”
The requirements for specific lines of insurance business have also been studied in more granular detail by the ICC – for action when the government’s travails are ended.
“Subject to reinstating a full functioning government in Lebanon, the ICC will be amending motor compulsory insurance for bodily damages, ratifying motor compulsory insurance for material damages, revising the regulation of insurance intermediaries activity in Lebanon and regulating online insurance,” Mr Nehme said.
“The ICC will adjust its impairment requirement in subsequent reporting to insurance companies’ exposure to local banks, Lebanese government sovereign debt and central bank certificates of deposits to cope with the adverse development in fiscal and economic conditions,” he said.
InsurTech and online insurers
Hardly surprisingly, special provision for the regulation of InsurTech or online only insurers in Lebanon has also been discussed at the highest level.
“The Lebanese insurance market is starting to follow the digitalisation trend as some insurers have started developing digital platforms to conduct their business,” said Mr Nehme. “In parallel, the ICC started preparing the related regulations and will be organising workshops with all stakeholders in the insurance industry to combine the technical evolution with the necessary laws to ensure a fair and transparent treatment of the policyholders within e-relationship with insurers.
“It goes without saying that the ratification of the project laws and regulations is in dire need of a full functioning government and until then we are focusing on setting up all the legal and technical infrastructure which would allow the insurance sector to step steadily and firmly into the new era of digitalisation,” he said.
Beirut blast after-effects
The trauma of the recent Beirut blast still hangs over the economy and may have an ongoing effect on the regulation of insurance as time goes by.
“As I mentioned earlier, the ICC has issued several regulations to ease the financial impact of the Beirut port explosion on insurance companies,” said Mr Nehme. “The ICC has performed a financial impact analysis of the Beirut port explosion on insurance companies and it is not anticipating insolvencies in the insurance market resulting directly from the explosion.”
Moreover, the minister of economy has sent letters to the relevant authorities to issue the official report stating the cause for the explosion as the reinsurers are refraining from providing cover before the issuance of the report.
“The ICC will closely monitor the settlement of claims related to the explosion once reinsurers start providing cover following the issuance of the official report on the cause of the explosion to ensure that policyholders are properly compensated for the losses they have incurred,” he said.
The ICC will issue a directive in this manner is due course noting that this matter is stressed by the minister of economy in all meeting he holds with insurance companies. M