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Insurance sector faces consolidation

  • The number of newly issued car insurance policies increased in the first quarter of 2014 compared with a year before. (The Daily Star/Mohammed Zaatari)

BEIRUT: More than 50 insurance firms exist in Lebanon but 10, which are mainly owned by local banks, control around 80 percent of the market. Industry experts argue that to remain competitive with regional peers, Lebanon’s small market requires further consolidation.

To encourage mergers and acquisitions, experts say the minimum capital requirement for insurance companies should be raised from the $1.5 million stipulated by the insurance law of 1999 to at least $10 million.

Though little effort has been made to amend the law to initiate a wave of consolidation in the sector, it seems that the stagnating Lebanese economy over the past two years is doing the job.

Four small insurance companies are considering selling their businesses to bigger firms, an industry source told The Daily Star.

However, the source added that talks weren’t conclusive yet, with the exception of one case that saw real progress in negotiations to close a deal.

A stagnating economy and muted growth in the insurance sector is the main but not sole factor encouraging smaller firms to consider selling their assets, the source explained.

Lebanon’s insurance sector posted flat results in the first quarter of 2014 compared with the same period last year, the head of the Lebanese Insurance Association, Asaad Mirza, told The Daily Star.

While the association has yet to release official results for 2013, Mirza said premiums grew by around 8 percent compared with 2012 while the number of issued policies remained almost flat.

On top of a stagnating economy, several other factors are supporting the consolidation trend, another industry source told The Daily Star.

Better scrutiny by the Economy Ministry, which is responsible for regulating the insurance sector, and increased awareness among clients of the status of each company are also major reasons, the source added.

The source explained that increased media coverage of attempts by certain insurance companies to dodge the settlement of claims and more efficient supervision by the Economy Ministry were making it harder for firms with a bad reputation to continue operating.

“Increased awareness among clients, whom certain firms used to be able to sell an insurance policy for half the standard price without raising a red flag over their intention not to pay later claims, is making it harder for companies with a bad portfolio to survive in the market,” the source said.

However, while some big insurance companies are looking to acquire smaller firms that enjoy a healthy portfolio, small companies with a lot of debt and bad portfolio management are unlikely to find a buyer, the source added. Asked whether mergers among those companies were a feasible solution, the source ruled it out.

The Lebanese insurance market is considered relatively saturated compared to other Arab markets, with premiums of less than $1.2 billion per year being shared among 50 insurance firms.

Among deals under discussion today, an Africa-based insurance company seeking to expand its operations in Gulf countries might acquire a Lebanese insurance firm that owns a license to operate in the United Arab Emirates.

The latest deal in the insurance sector took place in June 2012 when Morocco-based Saham Finances acquired 81 percent in LIA, the Beirut-based insurance arm of Bank Audi Group.

 
A version of this article appeared in the print edition of The Daily Star on March 31, 2014, on page 5.
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Summary

More than 50 insurance firms exist in Lebanon but 10, which are mainly owned by local banks, control around 80 percent of the market.

However, while some big insurance companies are looking to acquire smaller firms that enjoy a healthy portfolio, small companies with a lot of debt and bad portfolio management are unlikely to find a buyer, the source added.

The Lebanese insurance market is considered relatively saturated compared to other Arab markets, with premiums of less than $1.2 billion per year being shared among 50 insurance firms.

The latest deal in the insurance sector took place in June 2012 when Morocco-based Saham Finances acquired 81 percent in LIA, the Beirut-based insurance arm of Bank Audi Group.


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