Complex sanctions can hit business
As New York's finance regulator sets his sights on reinsurance firms that are allegedly breaking US laws in relation to Iran, there is a growing recognition of what a minefield this area is becoming for global reinsurers.
Benjamin Lawsky, superintendent of New York's Department of Financial Services, is seeking information from 20 non-US reinsurance firms. He says he has uncovered evidence of at least three non-US firms insuring shipments to Iran.
Such arrangements would contravene pending US laws against doing business with Iran. President Barack Obama in January signed an expanded sanctions law that bans any financial firm that does business in the US from providing services to companies that trade with Iran.
The issue of sanctions compliance has hit headlines several times this year already. The Indian government unveiled a plan to create a reinsurance pool that would cover imports of Iranian oil while Indian refineries Essar Oil and MRPL sought a legal opinion on the issue, which appeared to suggest reinsurers were not legally obliged to uphold European sanctions although most choose to do so anyway.
In a feature in the summer issue of Intelligent Insurer, Munich Re, the world’s biggest reinsurer which stresses that it has not received a letter from Lawsky, admitted that sanctions are having a growing impact on business. “It is quite obvious that there is an increasing use of sanctions in the EU and the US,” a spokesperson told Intelligent Insurer.
“This is evident from the increase in the dimensions of the EU rules: the EU regulation on Iran of December 2012 has about 120 pages. Just like any other company in the EU or in the US, Munich Re is becoming more affected by sanctions, and they have a considerable impact on our business.”
Others agree with this perspective. Lindsay McQuillian, a partner in the insurance and reinsurance practice at law firm Mayer Brown, says that it would be easy to assume that sanctions have not caused any significant problems as they are often associated with countries that are themselves problematic. But that is not always true.
“We’re being told that the sanctions relating to Iran have had a real impact on reinsurers because people were writing business with a nexus to that jurisdiction,” she says. “I am told by my clients that sanction restrictions have materially and detrimentally affected them. They now have to turn away business which they would previously have written as a consequence of sanctions that are in place.”
