LEBANON INSURANCE MARKET 2006

1. LEBANONINSURANCE MARKET2006 By George MATOSSIAN AL MASHREK insurance & reinsurance SAL

2. LEBANONINSURANCE MARKET • History of the market • Overview of the insurance market • New trends • Arab and World market shares • Generated premiums • The Future Outlook

3. LEBANONINSURANCE MARKET • History of Lebanon and its insurance market Lebanon is located in the Middle East region and is populated with approx. 4 million inhabitants living in an area of 10,452 squared Km, it is considered the smallest country compared to its surrounding neighboring countries. The Lebanese insurance market has always been open and liberal, in line with Lebanon's free market economy. Private insurers have historically been the only players in the local market and the state has never nationalized or expropriated any firm.

4. LEBANONINSURANCE MARKET • Overview of the market Lebanon's insurance sector dates back to the 1940s and expanded rapidly.  By the 1980s over 100 companies were competing for a share of Lebanon's small market, but many also had business elsewhere in the region.  The civil war, however, drove out many of the foreign companies and forced out economically many of the local companies.  By the end of the war about 70 companies were still operating.  As Lebanese began rebuilding and as the economy picked up in the 1990s, the insurance sector experienced a boom. According to local research firm Information International, insurance premiums rose an average of 12% between 1990 and 1998. Lebanon's insurance sector is more significant economically, more advanced, and more innovative than that of its Arab neighbors.  Insurance premiums per capita at $142 per person are only second to those in the U.A.E. for the region. Market penetration in Lebanon, however, is twice as high as that in the U.A.E.

5. LEBANONINSURANCE MARKET In 1999 the Ministry of Economy passed a new insurance law, replacing a 30-year old law, which introduced some overdue regulations to the country's unwieldy insurance sector. Key provisions of the law, which went into effect in 2001, included: • Raising insurance companies' minimum capitalization from USD 200,000 to USD 1.5 million. • Increasing the financial guarantees insurance companies must maintain at the Ministry of Economy for each category of insurance a company sells. • Limiting companies to issuing premiums up to ten times their capitalization. Previously there were no such limits. By comparison, in Europe and the U.S. insurance companies can only issue premiums up to between four and eight times their capitalization.  Some in the sector believe Lebanon should adopt higher ratios so as to improve the sector's financial soundness. • Requiring insurance companies to reinsure with a company that has a BBB+ or higher rating.

6. LEBANON INSURANCE MARKET • New Trends The changes in the laws and regulations limited the sector to 56 companies after mergers and acquisitions and closings among insurance companies.  Fifty-six companies now operate in the sector.  The ten largest companies control 70 to 80 percent of the total insurance market. The Lebanese market is facing lots of changes and challenges thus insurers shifted to new trends of business. a - The first trend is mergers and acquisitions among local insurers. b – Joint venturing between local and foreign companies. Surprisingly, the first trend, which is supposed to be the driving force is lagging behind. The second trend, which if properly applied is expected to have the highest profitability.

7. LEBANONINSURANCE MARKET • Arab and World market shares Globally, Lebanon ranks 60th ahead of Cyprus, Jamaica, Pakistan and Kenya, with insurance premiums accounting for 0.02% of the total, and 0.04% of non-life premiums and 0.01% of life premiums generated worldwide. However in the Arab Countries it is ranked 5th and accounts for 0.18% of total premiums, 0.33% of non-life premiums and 0.08% of life premiums generated in emerging markets. Which makes it account for 8.1% of total premiums, 7.3% of aggregate non-life premiums and 11.2% of life premiums of the Arab market.

8. LEBANONINSURANCE MARKET • Generated Premiums Insurance premiums generated in Lebanon totaled $628 million in 2005, of which $427.2 million were non-life premiums and $201.6 million for life premiums expressed in the chart below. Overall premiums rose nominally by 6.10% in 2005 which is slightly higher than the 5.5% growth rate in global premiums but significantly lower than the 11.8% rate posted by emerging markets. Although lebanon went through a lot of political disturbances in 2004 the report published by the ministry of economy shows a high growth rate. Insurance premiums rose by 17.8% to total $589.5 million of which $405.7 million were non life premiums and $183.8 million for life premiums. The figures shown before 2004 were not exact due to the nonexistance of an actuarial control body.

11. LEBANONINSURANCE MARKET • The Future Outlook According to local insurers the Lebanese market still has the potential for growth and that is mostly due to the lack of awareness in the population. A draft law has been revised and has been accepted by the Ministry of Economy and by some industry leaders as a model legislation with the capacity to establish Lebanon as a reference for modern insurance legislation in an emerging markets environment. The compulsory insurances also plays a big role in the markets future growth, one of which is Third party motor insurance, which has already been mandated another is the Decennial liability insurance, which is in the developing process.

12. LEBANONINSURANCE MARKET END Thank You