Lebanese Insurance Industry hit by rising political uncertainty: AM Best
Although Lebanese insurers are accustomed to operating in a challenging economic environment, an accelerating decline in investor confidence and US dollar cash-flow constraints create further risks for insurers with fixed costs in US dollars.
This is according to a new commentary from global credit rating agency AM Best, Rising Political and Economic Uncertainties Constitute a New Test for Lebanese Insurance Industry.
AM Best said it is closely monitoring the impact of heightened economic and political risk in Lebanon on local re/insurers. Demonstrations were sparked by the government’s October 17 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 October 29 announcement by Prime Minister Saad al-Hariri that he will resign.
Ben Diaz-Clegg, a financial analyst for AM Best, 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 US 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 said it 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.”
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