Lebanon has a long history of economic and political instability. In the past, local insurers have been successful at navigating this challenging environment. However, recent civil unrest and a ballooning public debt have increased the level of economic uncertainty, which is negatively impacting the credit quality of Lebanon’s insurance market.

In a new Best’s Special Report, “Lebanese Insurance Market Faces Mounting Uncertainty”, AM Best notes that in contrast with the wider Middle East and North Africa region, the Lebanese insurance market overall has an asset allocation that favours high levels of cash and fixed income instruments over higher risk investments. Nonetheless, the vast majority of Lebanese insurers’ investments are exposed to domestic issuers, and consequently to the socio-economic and political turmoil the country is experiencing. Specifically, uncertainties regarding the credit quality of Lebanese government debt pose the most imminent threat to domestic insurers’ balance sheets.

AM Best maintains close contact with the companies it rates in Lebanon and notes that they have been able to maintain robust, albeit reduced, levels of risk-adjusted capitalisation (as measured by Best’s Capital Adequacy Ratio [BCAR]), underpinned by a generally low level of underwriting leverage. That said, the increased social, political and economic instability in the country since October 2019 has exacerbated structural market issues that, in AM Best’s opinion, could further weaken insurers’ balance sheet strength.

Since the onset of the social unrest, AM Best-rated insurers have been proactive in implementing appropriate risk management actions. Measures have included triggering partial contingency plans, shifting investment exposure where possible and closely monitoring cash flows to limit the impact of a potential devaluation of the Lebanese pound.

Despite these actions, the mounting level of uncertainty in Lebanon implies that operating conditions could deteriorate further. As the situation evolves, AM Best will continue to monitor closely the ability of rated companies to meet their financial obligations as they fall due.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2020 by A.M. Best Company, Inc. and/or its affiliates.

Source: AETOSWire

Most Read