In their joint 1999 Financial Sector Assessment Program (FSAP), the World Bank and the International Monetary Fund concluded that the insurance sector in Lebanon is characterized by inadequate regulation and supervision. A 2005 Institut de la Mediterranee & Economic Research Forum (IM & ERF) report also observed that the insurance industry in Lebanon demonstrates inadequate transparency and disclosure, as well as financial and risk reporting. In 2003, the Financial Sector Reform and Strengthening Initiative (FIRST), as noted in its 2006 report, launched a "Review and Drafting of a New Insurance Law" project for Lebanon, which was completed in April 2006. The aim of the project was to strengthen the insurance sector in Lebanon through improved regulation and supervision, and to assist Lebanon in drafting a new Insurance Law and related regulations incorporating the 2003 Insurance Core Principles (ICPs) of the International Association of Insurance Supervisors (IAIS). As a result of the project's implementation, a new Insurance Law was drafted. Regulations related to the law were also prepared but only to a limited extent due to considerable re-drafting issues. The new draft law was expected to address weaknesses identified in the 2006 FIRST report. According to a 2006 Ministry of Finance report on Key Reforms, the draft legislation also provides for an independent Insurance Regulatory Commission with the necessary powers to undertake supervision of the insurance sector. The draft law was expected to be finalized by the end of May 2006, as stated in the 2006 FIRST report. However, as of November 2007, there is still no publicly available information regarding the implementation of the Law.

General Overview

In their joint 1999 Financial Sector Assessment Program (FSAP), the World Bank and the International Monetary Fund (IMF) concluded that the insurance sector in Lebanon was characterized by inadequate regulation and supervision. Furthermore, as stated in a 2005 Institut de la Mediterranee & Economic Research Forum (IM & ERF) report, "despite the positive reforms, the [insurance] sector still suffers from a lack of transparency and disclosure of operations, financial and risk reporting" (p. 147). According to the Lawrie Savage & Associates Inc. (LS&A) website, a new Draft Insurance Law was proposed on April 16, 2004, by the Ministry of Economy and Trade (MOET) as part of a project sponsored by the International Finance Corporation, the World Bank, the Canadian International Development Agency, and the Financial Sector Reform and Strengthening Initiative (FIRST). FIRST, as noted in its 2006 report, launched a "Review and Drafting of a New Insurance Law" project for Lebanon, which was completed in April 2006. The aim of the project was to strengthen the insurance sector in Lebanon through improved regulation and supervision, and to assist Lebanon in drafting a law and related regulations incorporating the 2003 Insurance Core Principles (ICPs) of the International Association of Insurance Supervisors (IAIS). As a result of the project's implementation, a new Insurance Law was drafted. Regulations related to the law were also prepared, but only to a limited extent due to considerable re-drafting of the Law. The new draft law is expected to address weaknesses identified in the 2006 FIRST report, including, among others, regulations for specialized insurance activities, investment rules, technical reserves, intervention powers of the supervisory authority, market conduct, corporate governance, capital adequacy, licensing or withdrawal of licenses, and merger and acquisition rules. According to a 2006 Ministry of Finance (MoF) report on key reforms, the draft legislation also provides for the establishment of an independent Insurance Regulatory Commission with necessary powers to undertake the supervision of the insurance sector. The draft law was expected to be finalized by the end of May 2006, as stated in the 2006 FIRST report, However, as of November 2007, there is still no information publicly available regarding the implementation of the law.

As noted on the MOET website, the insurance industry is regulated by 1968's Insurance Law No. 9812, which was last amended by the New Insurance Law No. 94 of 1999. According to the 2005 IM & ERF report, the 1999 Insurance Law introduced a solvency margin and raised minimum capital requirements, as well as setting forth technical provisions. Furthermore, it established an independent insurance supervisory authority, the ICC, directly attached to the MOET and composed of three departments (financial control, legal, and administrative). The ICC is "responsible for monitoring, testing, and enforcing solvency requirements for insurance companies that are licensed to operate." It is also "vested with some powers of intervention over these companies," according to the MOET website. The Directorate of Insurance Affairs, on the other hand, is "entrusted to implement and to reform all relevant laws and regulations and ensure that commercial companies adhere to them," and is divided into two departments - the Insurance Companies Department and the Regulation of Insurance Companies Department. An Association Agreement between the European Union (EU) and Lebanon was adopted in 2002 and entered into force on April 1, 2006 to promote the development of Lebanon. Lebanon is also a member of the IAIS.

According to a 2006 FIRST report, the insurance industry in Lebanon is comprised of about 60 insurance companies, with the top 10 companies accounting for around 60% of total premiums. The report underlines the importance of regulating insurance intermediaries, which account for over 60% of the insurance business. As noted in a 2007 U.S. Department of State (DoS) report, offshore insurance companies are prohibited in Lebanon.

The Principles

ICP 1 Conditions for effective insurance supervision

II

As noted on the MOET website, the insurance industry is regulated by the 1968 Insurance Law No. 9812, which was last amended by the 1999 New Insurance Law No. 94. In their joint 1999 FSAP, the World Bank and the IMF concluded that the insurance sector in Lebanon is characterized by inadequate regulation and supervision. Furthermore, as stated in a 2005 IM & ERF report, "despite the positive reforms, the [insurance] sector still suffers from a lack of transparency and disclosure of operations, financial and risk reporting" (p. 147). FIRST, as noted in its 2006 report, launched a "Review and Drafting of a New Insurance Law" project for Lebanon, which was completed in April 2006. The aim of the project was to strengthen the insurance sector in Lebanon through improved regulation and supervision, and assist Lebanon in drafting a law and related regulations incorporating the 2003 ICPs of the IAIS. As a result of the project's implementation, a new Insurance Law was drafted. Regulations related to the law were also prepared but only to a limited extent due to considerable re-drafting issues.

ICP 2 Supervisory objectives

II

There is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003.

ICP 3 Supervisory authority

II

The ICC was created as an independent entity under the 1999 New Insurance Law directly attached to the MOET. The ICC acts as Lebanon's supervisory authority, and is composed of 3 departments (financial control, legal, and administrative). According to the MOET website, the ICC is "responsible for monitoring, testing, and enforcing solvency requirements for insurance companies that are licensed to operate." It is also "vested with some powers of intervention over these companies." The new draft law is expected to address weaknesses identified in the 2006 FIRST report, including, among others, the intervention powers of the supervisory authority. According to a 2006 MoF report on key reforms, the draft legislation also provides for the establishment of an independent Insurance Regulatory Commission with necessary powers to undertake supervision of the insurance sector. The draft law was expected to be finalized by the end of May 2006, as stated in the 2006 FIRST report, However, as of November 2007, there is still no information publicly available regarding the implementation of the law, and overall there is also insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by the IAIS in October 2003.

ICP 4 Supervisory process

II

There is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003. As noted in the 2005 IM & ERF report, the insurance sector in Lebanon suffers from a lack of transparency.

ICP 5 Supervisory cooperation and information sharing

II

A European Union (EU)-Lebanon Association Agreement was adopted in 2002, and entered into force on April 1, 2006 to promote the development of Lebanon. Lebanon is also a member of the IAIS. Nevertheless, there is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003.

ICP 6 Licensing

II

According to the LS&A website, the new Draft Insurance Law sets out a comprehensive framework for insurance supervision, namely in the area of "requirements for insurer licensing, including minimum capital." Nevertheless, there is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003.

ICP 7 Suitability of persons

II

There is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003.

ICP 8 Changes in control and portfolio transfers

II

According to the LS&A website, the new Draft Insurance Law sets out a comprehensive framework for insurance supervision, namely in the area of "mergers and acquisitions." Nevertheless, there is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003.

ICP 9 Corporate governance

II

According to the LS&A website, the new Draft Insurance Law sets out a comprehensive framework for insurance supervision, namely in the area of "corporate governance for insurers." Nevertheless, there is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003.

ICP 10 Internal control

II

According to the LS&A website, the new Draft Insurance Law sets out a comprehensive framework for insurance supervision, namely in the area of "requirements for auditors and actuaries." Nevertheless, there is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003.

ICP 11 Market analysis

II

There is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003.

ICP 12 Reporting to supervisors and off-site monitoring

II

In its 2003 Report on the Observance of Standards and Codes (ROSC), the World Bank notes that the accounting and auditing regulatory framework is less advanced in the insurance sector than in the banking sector. Although insurance companies are required to prepare their annual financial statements in conformity with the IASs, the ROSC team could not obtain any financial statements prepared by insurance companies. According to the same report, the new Draft Insurance Law should enhance the regulatory and supervisory framework, and provide specific accounting requirements for insurance companies. Although these requirements differ from IASs, they will ensure consistency among the Lebanese insurance industry. Nevertheless, there is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003.

ICP 13 On-site inspection

II

There is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003.

ICP 14 Preventive and corrective measures

II

According to the LS&A website, the new Draft Insurance Law sets out a comprehensive framework for insurance supervision, namely in the area of "remedial powers and sanctions." Nevertheless, there is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003.

ICP 15 Enforcement or sanctions

II

There is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003.

ICP 16 Winding-up & exit from the market

II

There is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003.

ICP 17 Group-wide supervision

II

There is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003.

ICP 18 Risk assessment and management

II

There is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003. As noted in the 2005 IM & ERF report, the insurance sector in Lebanon suffers from a lack of financial and risk reporting practices.

ICP 19 Insurance activity

II

There is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003.

ICP 20 Liabilities

II

There is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003.

ICP 21 Investments

II

According to the LS&A website, the new Draft Insurance Law sets out a comprehensive framework for insurance supervision, namely in the area of "insurer investments and coverage of technical provisions." Nevertheless, there is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003.

ICP 22 Derivatives and similar commitments

II

There is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003.

ICP 23 Capital adequacy and solvency

II

There is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003.

ICP 24 Intermediaries

II

According to the LS&A website, the new Draft Insurance Law sets out a comprehensive framework for insurance supervision, namely in the area of market conduct, as well as "regulation of insurance agents and brokers." Furthermore, in its 2006 report, FIRST stresses the importance of regulating insurance intermediaries, which account for over 60% of the insurance business. Nevertheless, there is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003.

ICP 25 Consumer protection

II

According to the LS&A website, the new Draft Insurance Law sets out a comprehensive framework for insurance supervision, namely in the area of market conduct. Nevertheless, there is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003.

ICP 26 Information, disclosure & transparency towards the market

II

There is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003. As noted in the 2005 IM & ERF report, the insurance sector in Lebanon suffers from a lack of disclosure of operations practices.

ICP 27 Fraud

II

There is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003.

ICP 28 Anti-money laundering/ Combating the Financing of Terrorism

II

According to the 2007 U.S. DoS report, provisions of the 2001 Anti-Money Laundering Law expand the type of financial institutions subject to the provisions of the 1956 Law on Banking Secrecy to namely include insurance companies. Nevertheless, there is insufficient publicly available information regarding Lebanon's compliance with the revised ICPs issued by IAIS in October 2003.