AM Best is closely monitoring the impact of heightened economic and political risk in Lebanon on local (re)insurers. Demonstrations were sparked by the government’s 17 October 2019 announcement of 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 that he will resign.

In a new Best’s Commentary, “Rising Political and Economic Uncertainties Constitute a New Test for Lebanese Insurance Industry,” AM Best notes that although Lebanese insurers are accustomed to operating in a challenging economic environment, the accelerating decline in investor confidence and U.S. dollar cash-flow constraints create further risks for insurers with fixed costs in U.S. dollars.

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 U.S. 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.”

Source: AETOSWire

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