COVID-19 Measure: Read Full Magazine Here. Beyond the human tragedy, the impact of the Port of Beirut explosion has had implications at the national level, despite its geographical concentration.
These add to Lebanon’s long-term structural vulnerabilities, which include low-grade infrastructure—a dysfunctional electricity sector, water supply shortages, and inadequate solid waste and wastewater management—as well as weak public financial management, large macroeconomic imbalances, and deteriorating social indicators.
For nearly two years now, Lebanon has been assailed by compounded crises—specifically, an economic and financial crisis, followed by COVID-19 and, lastly, the explosion at the Port of Beirut on August 4, 2020.
Of the three, the economic crisis has had by far the largest (and most persistent) negative impact. The Spring 2021 Lebanon Economic Monitor finds that Lebanon economic and financial crisis is likely to rank in the top 10, possibly top three, most severe crises episodes globally since the mid-nineteenth century. In fact, Lebanon’s GDP plummeted from about US$55 billion in 2018 to a projected US$20.5 billion in 2021, while real GDP per capita fell by 37.1 percent. Such a brutal contraction is usually associated with conflicts or wars.
Lebanon’s annual inflation rate jumped to a new record high of 201.07% in November of 2021 from 173.6% in the previous month, boosted by faster rises in prices of housing & utilities (80.69% vs 75.72%), food & non-alcoholic beverages (357.95% vs 303.66%), and transport (579.90% vs 508.2%), amid a sharp depreciation of the Lebanese pound and political crisis. At the same time, prices increased more for clothing & footwear (238.17% vs 209.08% in October), furnishings, household equipment and routine maintenance (208.03% vs 150.02%), and recreation & culture (136.43% vs 126.8%). On a monthly basis, consumer prices went up 10.63% in November, easing from a 16.42 percent rise in October.
Lebanon’s inflation stood at 90% in 2021, as per Bloomberg.
Lebanon remains one of the most challenging new vehicle sales markets, as per Fitch Solutions.
Comparatively, global inflation stood at 4.34% in 2021 according to the IMF’s World Economic. Outlook (2.76% for advanced economies.)
Beirut ranks third globally in Mercer’s “2021 Cost of Living Survey” up by 4 positions in 2020.
Insurance premiums in Lebanon to be paid in US dollars in 2022 following the significant depreciation of the Lebanese Pound.
ICC quarterly report displayed ratio of paid claims to gross written premiums for 51% in 1Q 2021 compared to 61% in the first quarter of 2020, ratio of acquisition expenses to gross written premiums for 15% (unchanged from Q1 2020), ratio of administration expenses to gross written premiums for 11% versus 10% in Q1 2020, ratio of acquisition and administration expenses to gross written premiums for 25% in Q1 2021compared to 6% in Q1 2020 and ratio of net investment income to gross written premiums for 4% in Q1 2021 versus 8% in Q1 in 2020.
Mercer Institute issued its “2021 Cost of Living Survey” in which Lebanon ranked in the third position globally, up from the 45th position in 2021. It also ranked first in the Arab MENA region.
Insurance Control Commission (ICC) released its report of 2021displaying an overview of number of subject matters, number of claims reported, gross written premiums, benefits paid, acquisition expenses, administrative expensed and net investment income.
The banking sector, which informally adopted strict capital controls, has ceased lending and does not attract deposits and definitely this impacted the insurance business in Lebanon.
A rapid change in customer behavior is sweeping across, accelerated by COVID-19. Consumers across the globe are looking at products and brands through a new lens. The virus is reshaping the industry in real-time, rapidly.
With the advent of digital platforms, mobile apps, and big data, customers now expect quicker and more effective service than ever before. And they expect that enhanced level of service from the moment they buy a policy right through to the settlement of a claim. Social distancing measures introduced during the ongoing COVID-19 pandemic have also forced many laggards to become early adopters of digital and seek out online solutions. Meanwhile, global firms are also seeking to harness the power of digital solutions to help them understand their customers better—and increase effectiveness and minimize losses as a result.
From 2022, insurance companies will collect premiums on health insurance in “fresh dollars” only, says the Association of Insurance Companies in Lebanon (ACAL), as the insurance sector has been struggling to cope with the collapse of the Lebanese pound since 2019.
The term “fresh dollars” refers to the sums denominated in US dollars, injected into the Lebanese banking system and collected either in cash or through international electronic payments.
This decision comes in response to the challenges facing the insurance market following the significant depreciation of the Lebanese Pound.
Lebanon is suffering the worst economic crisis in its history.
Karim Hamade is the newly appointed CEO at UCA after the passing away of its founder and chairman Jacques Sacy.
He is a graduate of the American University of Beirut-Higher Education 1984-1988.
Hamade is skilled in: Strategic Planning, Public Relations, Leadership, Research, Social Media, Business Planning, Strategy, Negotiation, Project Management and New Business Development.
He started at UCA-Lebanon back in 2000 with determination to create an eminent and long-lasting name in the insurance industry and attract elite clientele and give them unmatched risk advisory and attentive competent care, thru leading a sales executive’s team that is both technically sharp and always reachable. He slowly gained prominence among peers and businesses which help grow UCA portfolio steadily.
UCA is a member of AWRIS (war syndicate), and a founding shareholder of UCA KSA, Credit Insurer (LCI) and recently Sarwa Insurance and Sarwa Life in Egypt, and an investor in Arab Re.
UCA is a leader in Fire & Marine with about 7% of the aggregate Lebanese market.
UCA incorporated in 1974, is the legacy of G. Sacy Establishment that started selling insurance policies in Beirut since 1934.
UCA has consistently achieved some of the best financial and insurance ratios in the MENA region: Solvency ratio in excess of 100% (multiple years), ROE of 19.5% (5 years CAGR), combined ratio of about 80% (last 5 years).
UCA has consistently achieved some of the best financial and insurance ratios in the MENA region.
For years, UCA had a CAGR that exceeded the sector and most of its competitors and remains a leading and consistent performer in Lebanon.
UCA has achieved solid and consistent technical results for more than a decade, and starting in 2015, is awarded significant RI capacity by its treaty leader Hannover Re that sets a new milestone for the company.
UC writes Marine, Property & Indemnity, Motor, Medical, Life, Contractors All Risk, Political Violence, Hunting Third Party, Money, Travel, Workmen, Compensation, Expatriate Policy, Liability and Personal Accident.
UCA has established strategic partnerships with top-rated reinsurers over the years.
UCA enjoys one of the most generous risk sharing agreements in the Lebanese markets as a reflection of reinsurers’ confidence in UCA’s expertise and market conduct.
The company’s current treaty reinsurers are led by Hannover Re and other A rated reinsurers.
In BUSINESS LIFE exclusive interview, the reputed Karim Marwan Hamade talks about the special challenges the insurance sector is facing in Lebanon and his views on building better industry in Lebanon.
BL: What happened to Lebanon’s insurance sector in 2021? What are your expectations for 2022?
Karim Hamade: 2021 was an adaptation period for the Lebanese insurance sector after the financial crisis and the tragedy of the Beirut Port explosion.
Insurers encouraged their clients a shift to US$ (fresh) in Property and Marine insurance, lest their cover would be inadequate and insufficient. In Motor, different products were introduced to accommodate clients who found it increasingly difficult to secure US$ to buy car insurance. However, those with new (or relatively new) cars opted for US$ products to protect the replacement values. In Medical, the lifting of subsidies late in 2021 accelerated the shift to US$. Life insurance products brought their own set of challenges as investment-linked products were mostly tied to Lebanon leading to erosion of values, and again, clients were encouraged to pay new annuities in US$ to preserve their protection cover.
We are also facing insurance rate increase with tougher conditions being imposed by the A rated reinsurers after the Beirut Port explosion.
The sector will continue to adjust in 2022 but with a lot of difficulties due to the several exchange rates imposed on the market and the lack of visibility for the future.
BL: Why is there inflation in Lebanon and what is its impact on the insurance business?
Karim Hamade: Both the commercial and current balance of Lebanon are negative and only an IMF program coupled with political stability can stem the LBP decline.
BL: What are your comments on Lebanon economic crisis and financial in 2021?
Karim Hamade: Insurance is a resilient business, but as the economy shrinks 60%, premium income tends to follow the same pattern in real value. Moreover, local assets of insurers are severely impaired, with legacy USD deposits fetching 20% of their nominal values.
BL: Is the Lebanese population capable of paying their policies in US$ especially that the current population of Lebanon is 6,777,590 as of Wednesday, January 26, 2022, based on Worldometer elaboration of the latest United Nations data?
Karim Hamade: Certainly not all clients are capable of paying their policies in fresh. What happened in 2021 which didn’t happen in 2020; the government started lifting its subsidy on most items which led to a rapid inflation especially in hospital bills, this led automatically to hospitals asking to be paid in fresh.
What we are trying to do is to introduce new products with an excess or with limited coverage that will lead to a lower premium and accommodate our clients during those difficult times.
BL: Are you optimistic about your industry during this year because the political and economic challenges are impacting all industries?
Karim Hamade: Exactly, we need political stability. Political stability will lead to economic stability. We need the government to introduce reforms that will help in opening serious negotiations with the International Monetary Fund (IMF). As soon as we have stability then there is no worry about our sector. Until this takes place, yes, I am worried because most insurance companies have their money held in the Lebanese banks, + the value of these funds is shrinking day by day. ACAL has tried in 2020 and in 2021 with the help of the Ministers of Economy to open negotiations with the Central Bank to secure in fresh $ part of the Lebanese insurance companies’ funds that are blocked in the Lebanese banks in order to settle our dues to the reinsures as well as to settle the claims to our clients but unfortunately with no luck. Am I optimistic today? I will be optimistic once I see some reforms and some political stability happening. Unfortunately, I’m not seeing yet the end of the tunnel.
BL: The Association of Insurance Companies in Lebanon (ACAL) announced that the underwriting and renewal of insurance policies will be done in “Fresh Dollars” as of 2022, what is your opinion?
Karim Hamade: All insurance companies have to settle the reinsurance premiums in fresh which is leading to this natural shift of mostly all premiums to fresh $ as explained previously.
This shift will also affect claims payment to our insured in a positive way, they won’t have to bear anymore any difference from their pocket and the claims will be settled at their real value.
BL: One year after the explosion that took place in the port of Beirut, several claims have not yet been compensated by insurance companies, what is your justification? How is UCA handling this issue?
Karim Hamade: Unfortunately some reinsurers are still refusing to advance any payments on the claims of the Beirut port explosion before the official report is published. We at UCA are leading the market in settlements thanks to our treaty reinsurers trust, we have paid fully or partially 100% of the claims under US$ 200,000 by the end of 2021. Of course, the largest claims are not fully settled yet and they represent 70% of the total claims value. Settling these large claims is dependent on adjustors and contractors, the former appointed by insurers and the latter by clients that have to sit together; present detailed invoice, most of the time in 3 different currencies (LBP, Lollars, fresh $) and readjust them to real $ in order to be presented to the reinsurers. UCA wishes to complete the settlements hopefully before Aug 4,2022.
BL: UCA is reputed for its professional business in the marine insurance, how did the Beirut port explosion (accident or act of terrorism) impact your results and your business?
Karim Hamade: Our Marine business is mainly thriving by the support of our loyal regional clients that still have trust in UCA and its very strong reinsurance treaty panel led by Hannover Re. I take the opportunity of this interview to thank our treaty reinsurers who stood and are still standing by us during this difficult period.
BL: Reinsurers were heavily impacted by the above event, Swiss Re has set aside a reserve of 222 million USD in Q4 2020. The losses of Munich Re and SCOR were established at 100 million EUR (118.6 million USD) and 44 million EUR (51.5 million USD) respectively. How is the situation at UCA?
Karim Hamade: The FS 2020 of UCA booked a 2M$ reserve to fund the retained value of unpaid claims at that point - on top of settlements in 2020 that were booked during that year. Our total reserve on the Beirut Port explosion is around 40 million USD. UCA has a well-structured reinsurance program that mitigated its own exposure.
BL: What is your opinion on merger between two Lebanese insurance companies?
Karim Hamade: Mergers are on the horizon, while it is difficult to catch a falling knife, we expect mergers to accelerate when a new insurance law is enacted and forces substantial capitalizations demands, ultimately forcing alliances.
BL: How are you going to support the development of the digital disruption in insurance? How did the rapid rise in e-commerce activity, driven by the COVID-19 pandemic impact the insurance business?
Karim Hamade: Digitization of insurance products will certainly accelerate especially for personal lines: motor, life, travel, medical etc..; it will depend largely on adopting electronic signatures by law, (Docusign for example) to make a digitized differentiated and useful. The pandemic has certainly highlighted the importance of digital: cloud-based applications, visual communication software on top of a medium to reach and sell products.
BL: Is it true that alternative financial tools are better poised to leverage economic growth of various countries in the coming years? How do you plan to improve the financial landscape for businesses during 2022? Is it possible?
Karim Hamade: UCA is operating in Lebanon bound by its specific risks, but we rely on excellent relations with reinsurers based on years of technical results due to UCA’s competence in Property and Marine underwriting; evidenced by a large treaty capacity allocated to UCA led by our longtime treaty leader and reinsurance partner Hannover Re. We continue to serve clients that trust and entrust their risk assessment and insurance needs for years. We remain financially sound and highly solvent despite the erosion of value of deposits held in the Lebanese banking sector, helped by our international investments and banking. Finally, our small team of seasoned underwriters and client executives mixed with young bright talents, give us confidence that we will face the challenges as best as we can.
We expect that the next couple of years will be difficult, pending a financial package with the IMF and political stability to build confidence to deploy funds and resources in Lebanon.
BL: Will the negations with the IMF succeed?
Karim Hamade: The Lebanese budget was presented recently to the council of ministers, while we talk, it is still under discussion. In my view, the new taxation program is illogical, you cannot impose such taxes when you have people starving and the private sector is fighting against all odds in order to keep standing on its feet.
Reforms have to be introduced for the IMF negotiations to succeed.
