- 27
- Nov.
- 2024
Reinsurers are hesitant to renew reinsurance contracts with Lebanese insurance companies — an expected approach in view of the conflict sparked by Hezbollah’s front against Israel.
As the year-end approaches, most annual reinsurance agreements for the 40 insurance companies operating in Lebanon are set to expire. Negotiations have been fraught, with reinsurers expressing deep concerns about the elevated risks associated with the Lebanese market.
The reality is that insurers cannot operate without reinsurers, underscoring the essential interdependence between the two sectors. Reinsurance is pivotal in enabling insurance companies to share risks, expand their coverage capacity and maintain financial stability in the face of substantial losses.
Not as Dire as It Seems
“Securing annual reinsurance agreements is a challenge for every Lebanese insurer. However, the situation isn’t as dire as it might seem,” an industry leader told This is Beirut under the condition of anonymity. Reinsurers naturally favor operating in stable, peaceful markets over conflict zones. This is particularly true given the modest size of Lebanon’s reinsurance market, estimated at around $1 billion — far smaller than the $14-15 billion market of the United Arab Emirates (UAE).
Another industry source voiced concerns to This is Beirut about the potential for Lebanese insurers to turn to smaller, less established reinsurers based in Africa. Until now, Lebanese companies have consistently worked with the world's top five reinsurers: Munich Re, Swiss Re, Hannover Re, Scor Re and Gen Re.
Insurance and Reinsurance
The main challenge currently facing Lebanese insurance companies lies in selective or facultative reinsurance (commonly referred to as Fac in industry terms). Unlike standard reinsurance treaties, which typically cover a broad range of risks and are now expected to see premium increases and stricter conditions, Fac contracts are more complex and require more detailed negotiations. As a result, reinsurers are taking a particularly cautious approach.
Fac is generally applied to atypical or high-value risks that cannot be covered under standard reinsurance treaties. In these cases, reinsurers adopt a selective approach, evaluating each individual risk before deciding whether to accept or decline it. Unlike standard (automatic) reinsurance, where a portfolio of risks is ceded collectively, facultative reinsurance is negotiated on a case-by-case basis. For instance, if an insurer wants to cover a metallurgical plant, but the exposure exceeds their capacity, they would offer the risk to reinsurers through facultative reinsurance.
Public and Private Sectors
As part of the annual renewal season for standard reinsurance contracts, a delegation of Lebanese insurance companies met last week with Wissam Mansouri, the acting governor of Lebanon’s Central Bank (BDL), and Caretaker Minister of Economy Amin Salam. The purpose of this initiative was to provide tangible support to insurers in their negotiations with international reinsurers.
Salam assured that he would send letters to reinsurers and the embassies of their respective countries to help ease the process for Lebanese stakeholders. However, a crucial question arises: to what extent can the public sector genuinely influence the private sector's relationships with reinsurers?
Moreover, sources close to the insurance industry have reported that two major reinsurers have already pulled out of the Lebanese market.
Comments