Lebanese Insurance Market Faces Mounting Uncertainty Reported by Bests Market Segment

Lebanon has a lengthy record of economic and political instability. In the past, local insurers have been successful at moving out with this difficult environment. But, current civil unrest and a ballooning public debt have elevated the level of economic uncertainty, which is negatively having an effect on the credit quality of Lebanons insurance market.

In the latest Bests Special Report, Lebanese Insurance Market Faces Mounting Uncertainty, AM Best noticed that compared with the broader Middle East and North Africa region, the Lebanese insurance market overall has an asset allocation that supports high levels of cash and fixed income instruments over higher risk investments. However, the huge majority of Lebanese insurers investments are opened up to domestic issuers, and constantly to the socio-economic and political turmoil the country is experiencing. Particularly, uncertainties concerning the credit quality of Lebanese government debt pose the most inevitable threat to domestic insurers balance sheets.

AM Best remains close contact with the organizations it rates in Lebanon and notes that they have been able to retain strong, albeit reduced, levels of risk-adjusted capitalization (as measured by Bests Capital Adequacy Ratio [BCAR]), underpinned by a commonly low level of underwriting leverage. That stated the elevated social, political and economic instability in the country since October 2019 has aggravated structural market issues that, in AM Bests opinion, could further weaken insurers balance sheet strength.

Since the onset of the social unrest, AM Best-rated insurers were proactive in enforcing proper risk management actions. Measures have included triggering partial contingency plans, moving investment exposure where possible and closely monitoring cash flows to restrict the influence of a potential devaluation of the Lebanese pound.

In spite of these actions, the mounting level of uncertainty in Lebanon shows that operating conditions could deteriorate further. As the condition evolves, AM Best will proceed to scrutinize closely the ability of rated companies to meet their financial obligations as they fall due.

To access a complimentary copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=295194.