Although Lebanese insurers are accustomed to operating in a challenging economic environment, the accelerating decline in investor confidence and US dollar cashflow constraints create further risks for insurers with fixed costs in US dollars, says AM Best.
The international rating agency is closely monitoring the impact of heightened economic and political risk in Lebanon on local (re)insurers. The government announced on 17 October 2019 a planned tax on calls made via Voice over Internet Protocol (the “WhatsApp tax”). Since then, non-sectarian and mainly non-violent demonstrations have spread across Lebanon in response to political leaders’ inability to resolve the country’s economic deadlock, culminating in the 29 October announcement by Prime Minister Saad al-Hariri of his resignation.
Lebanese banks opened to customers on 1 November for the first time in two weeks following the unprecedented wave of protests. The banks are seeking to prevent capital flight.
In a new Best’s Commentary, “Rising Political and Economic Uncertainties Constitute a New Test for Lebanese Insurance Industry,” Mr Ben Diaz-Clegg, financial analyst, said, “Given the worsening liquidity situation, insurers are taking steps to bolster their own dollar reserves, trying to maximise cash inflows in the currency whilst minimising outflows. A scarcity of US dollars in general circulation also has impacted insurers’ ability to collect premiums, with brokers and policyholders pressuring the market to accept Lebanese pounds.”
AM Best is maintaining close contact with its rated Lebanese (re)insurers during this period of declining economic confidence and instability. Ghislain Le Cam, director, analytics, noted: “AM Best will continue to monitor the situation, paying particular attention to asset-liability matching and how changing economic conditions are factored into reserving practices.”