BEIRUT: The minimum capital requirement for insurance companies in Lebanon should be raised to at least $10 million to improve the efficiency of the sector and encourage consolidations among firms, the president of the Lebanese Insurance Association said Wednesday.
“We have too many insurance firms in this country and for this reason the Economy and Trade Ministry should raise the capital from $1.5 million to $10 million. The $1.5 million capital requirement is quite ridiculous,” Assaad Mirza told The Daily Star.
According to Mirza, there are 50 insurance companies operating in Lebanon. He said this was too many for a small country such as Lebanon.
The Economy Ministry, which regulates the insurance sector, raised the capital requirement for firms to $1.5 million more than 10 years ago, but Mirza believes it should be much higher than that.
Mirza stressed that if the requirement were raised to $10 million then most of the small companies would be compelled to either sell their assets or merge with other firms to stay in the very competitive market.
“If we cut this number to 30 to 35 companies then this will be a great step. But the sector cannot prosper if the capital remains very low.”
The country’s 10 largest banks control more than 80 percent of the market share in Lebanon and rest is divided among the smaller firms.
Mirza said any company with small operations could raise the $1.5 million capital but if the capital were raised more than that then these firms may abandon plans to stay in the market.
Mirza argued that Lebanese insurance firms need to be on equal footing with other large companies in the Middle East and one way to do that is by raising the capital and solvency ratio.
Mirza said that despite the acceptable growth of the insurance industry the sector nevertheless was far from playing a commanding role in the Lebanese economy.
“Total written insurance premiums in the first six month of 2013 were $739.02 million with a 7 percent growth compared to the same period of last year,” he said.
“But this growth was only attained after the government and the National Social Security Fund raised medical and hospitalization fees. We may have a premium of $1.2 billion to $1.4 billion at the end of this year. But this growth is still not enough.”
Mirza believes that if the country enjoyed full political stability and a government to run the affairs of the country then the premiums could easily reach $2 billion.
“We expect to achieve a growth of 7 percent, which is similar to last year but we are not too satisfied. We need to have a growth close to 2010,” he said.
He said that revenues from auto insurance fell this year as more Lebanese shifted to smaller and fuel efficient cars.
“The insurance on small cars is far cheaper than medium and large cars, and naturally the revenues from the motor insurance fell this year.”
But the industry leader remains upbeat about the future of Lebanon’s insurance sector.
“I am an optimist by nature. I am sure we are going to witness a very good growth in four or five years,” Mirza said.
The Lebanese insurance industry is already considered one of the most developed in the region.
Earlier this year, global reinsurer Swiss Re ranked Lebanon 48th worldwide and first in the Middle East region in terms of insurance penetration – measured in insurance premiums as a percentage of GDP.
But Mirza insisted that despite the improvement, the ratio of insurance premiums to Lebanon’s GDP was still too low compared other sectors.