Insurers have noticed huge support from reinsurers in relation to insured losses arising from the 4 August Beirut Port explosion, according to Mr Elie Torbey, president of the Association of Insurance Companies of Lebanon (ACAL).
Mr Torbey, speaking during a webinar organised by the General Arab Insurance Federation (GAIF) on 30 September, said that the emergency response committee or crisis committee of ACAL has been in direct contact with most of the reinsurers. Discussions with the reinsurers started a week after the blast. Appointed loss adjusters were already on the ground.
He said, “We clearly informed our reinsurers about the repercussions on the insurance sector in case we refuse to pay claims until we receive the investigation report. We are now negotiating with them the possibility to start paying gradually and progressively the claims even in the absence of any report once the loss adjusters have finalised their work.
“Two reinsurers even took the decision to send an advance payment to the cedants which is highly appreciated. I am almost sure that other reinsurers will follow the same steps.'
The estimated insured losses are around $1.5bn. 90% of the losses are reinsured with A rated reinsurers. Moreover, it has been estimated that 50% of the insured losses are on the treaty side and the other 50% on the FAC side.
Mr Torbey also said, “Depending on what caused this explosion, then we can really evaluate the impact on the insurance sector as well as on reinsurers. We are still waiting for an official report or at least a preliminary report from the government or concerned authorities describing what really happened on 4 August.
“Was it an act of war, a terrorist attack or a simple accident? Till now, we don't have answers and we might not have any answers for a long time, even for years.”
He added that in the event the blast was caused by an accidental explosion, then most fire and allied perils, property all risks policies will cover the insured losses due to the explosion. Marine policies will cover the damaged or destroyed goods at Beirut Port.
In case the cause behind the explosion is defined to be a terrorist attack, only political violence policies will cover the insured losses and such policies are less in demand in Lebanon because they are expensive and usually requested by corporate clients.
Mr Torbey added, “We all know that it might take weeks or even months or years before having a report describing exactly what happened. Nevertheless, what we know for the time being is that the incident at Beirut Port started with a fire for almost 20 minutes or even longer, followed by a huge explosion.”
He said that insurers, if a court case was brought against them, have to prove as per the Lebanese Code of obligations and contracts that the incident was due to war or warlike operations. Since insurers will never be able to prove that, then the court ruling will be in favour of the claimant. Therefore in the absence of a final report, insurers will opt to pay claims subject to the approval of their reinsurers.
Mr Torbey said that the 4 August Beirut Port explosion was an event which has resulted in the biggest claim in the history of the Lebanese insurance market. The explosion caused around 200 deaths, injured 6,500 people and destroyed properties estimated at a value of $5bn.
He said however that capital control measures and the devaluation of the Lebanese pound have a bigger impact on the insurance sector than the explosion. “Nevertheless, the Lebanese insurance sector might need years to recover amounts settled in relation to this event,” he added.