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The August 2022 issue turned to an industry it considered missing from every reform plan: insurance. The Lebanese sector was among the oldest and best regulated in the region and led the Arab world in penetration, yet it was small, highly fragmented and unlisted, with 51 companies at end-2019 competing for the same limited pool of risks. The crisis hit it through the banking system: policies linked to banks were settled in devalued 'lollars', health cover no longer matched largely imported medical costs, and most reserves were trapped in sovereign paper and blocked deposits.
The authors argued that regulation confining technical reserves to government bonds, central bank certificates and bank deposits had made insurers mirror the banks' concentration on the state, at the expense of domestic capital markets. In developed markets insurers are natural institutional investors; in Lebanon they could become a new source of SME funding if the Electronic Trading Platform were launched, corporate bonds enabled and investment rules relaxed.
To that end the issue proposed a domestic rating scale to classify local instruments otherwise capped at the sovereign's Selective Default, together with a programme of higher capital and solvency requirements, a modernised insurance law, IFRS 9 reporting, compulsory ratings, consumer protection and a dedicated recapitalisation fund to drive consolidation, which it saw as a pilot for the banks.
Key findings
- Written premiums were about US$1.65 billion in 2019, sector equity around US$1.1 billion, and insurance penetration 3.5% of GDP, the highest in the Arab world.
- The issue stated that pre-2022 policies compensated in lollars lost about 87% of their value, and that companies were protected for only 13% of potential losses.
- Fixed income accounted for 26% and blocked bank deposits for 27.8% of the sector's investments in 2019.
- The issue held that the US$1.5 million minimum capital and a 15% lump-sum tax on policies rather than profits encouraged sub-scale companies.
Archive: written in Aug 2022; figures and assessments reflect conditions at the time of writing.Summary of the paper; the full analysis is in the PDF.