Author:Tuttle, Robert S.

Robert S. Tuttle reports from Beirut on new insurance regulations which could result in financial chaos.

With nearly 80 insurance companies competing for a market share in Lebanon, the government is set to implement new regulations meant to eliminate those firms whose solvency is inadequate.

As the centrepiece of the economy ministry's insurance reform plan, presently being debated in parliament, the minimum capital level required of companies will be raised from LL300 million ($200,000) to LL2.25 billion ($1.7 million).

The new measure is likely to spark a flood of mergers and acquisitions within the saturated market. However, questions remain as to whether the country has the expertise to handle this massive upheaval.

According to Rashid Rashid, a founding member of the recently formed Lebanese Actuary Association, there are currently only six licensed actuaries in Lebanon.

Actuaries have the highly specialised job of calculating risk -- making their services invaluable to insurers. One insurance official compared an actuary's job in an insurance company to that of an engineer in a construction firm.

"The current situation in Lebanon," he said, "is like having a city built without using engineers."

Currently, most insurance companies are passing on part of their risk to foreign insurers. For insurance contracts on costly projects, said Rashid, a company may pass on 50 to 90 per cent of the risk, while risk on less costly clients is retained.

Though reliable statistics are not available, Rashid estimated that 30 per cent of all risk in Lebanon is reinsured. By relying on foreign reinsures, local firms also use foreign actuaries.

Nonetheless, most Lebanese insurers are having to rely on the calculations of auditors and accountants who have mathematical training but whose skills are not specialised enough to do risk analysis properly.

In 1996, Income Insurance went bankrupt because, according to an insurance industry official, its statistics were improperly collected.

"They had a pricing problem," noted the official. "They started financing their premium and people started to default on payment."

Though the firm's portfolio was taken over by another company, the case was a reminder of the precarious ground the sector stood upon. It also revealed the inadequacies of the country's insurance regulator, the insurance control commission. About two years ago...

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