Remaining US sanctions harming appetite for Iran-related business

15-02-2016

The remaining US sanctions on Iran are negatively impacting the risk appetite for Iran-related business, according to 85 percent of London market insurance professionals.

This is according to research carried out by Clyde & Co, the global law firm.

Although there has been significant US and EU sanctions relief, Clyde & Co said that the US primary sanctions that remain in place are proving a strong disincentive to London-based insurers looking to write Iran-related business. This is likely to have important implications for Iran's ability to increase trade with the rest of the world.

Clyde & Co said that on "Implementation Day" the vast majority of Iran-related EU sanctions and US "secondary" sanctions, those US sanctions which target the conduct of non-US persons (e.g. London based insurers), were lifted. This means that, broadly, it is permissible for EU persons to trade with Iran subject to certain restrictions.

US primary sanctions – those US sanctions targeting US persons (both US individuals and entities) – remain in place subject to two new licenses. This means that virtually all trade, directly or indirectly, with Iran is still prohibited for US persons. One of the US licenses authorises UK based subsidiaries of US insurance groups to write Iran-related business, but again this is subject to fulfilling a strict set of criteria, adds Clyde & Co.

The research found that despite the remaining US sanctions causing uncertainty in the market, just over two thirds (67 percent) said their risk appetite for Iran-related business had increased in light of the easing of sanctions on Implementation Day.
Topics involved with the appetite for Iran-based business include the fact that every US dollar transaction has to clear via the US banking system. If it were in relation to Iran-related risks, it would be blocked by the US bank. This means US dollars cannot be used for such business, according to Clyde & Co – causing a major problem for insurers and their insureds who conduct business in US dollars.

Reinsurance is another problem facing insurers. Insurers may have obtained insurance from US based reinsurers who cannot receive premium or pay a claim in relation to Iran-related business. This means that insurers carry all the risk themselves. If a large claim occurs, they would have to pay it all (which could negatively impact profitability).

Businesses are also required to know who they are covering. There are still a significant number of individuals and entities that are listed by the EU/UK and US (including the Islamic Revolutionary Guard Corp which is heavy involved in the Iranian economy). This creates significant compliance challenges as information on counterparties is not as readily available as in other countries. The risks of getting this wrong are substantial so extra caution is required before entering any contracts.

Banking remains a major concern for insurers seeking to do business in Iran also. The European tier one banks have shown zero appetite for conducting Iran-related business. This means insurers cannot receive premium for going on risk.

Snapback (the reinstatement of sanctions) remains a possibility despite sanctions relief. The agreement with Iran permits sanctions to be reinstated in the event of significant non-performance. Insurance tends to be for 12 months or longer. There is uncertainty amongst insurers with exposing themselves to the risk of "snapback" which, if it happens, is likely to lose them money.

Clyde & Co conducted the survey at a seminar for the London insurance market on the Iran-related sanctions relief which occurred on Implementation Day. Talks were given by the UK Department of Business, Innovation and Skills, Lloyd's of London, KPMG and Clyde & Co UK, US and Middle East.

Chris Hill, partner at Clyde & Co, said: "It is clear that many professionals within the insurance market are looking at opportunities arising from the easing of Iran-related sanctions. However, the remaining US primary sanctions are having a negative impact on their risk appetite for such business.

"Interestingly, even those London-based insurers with no US operations are very concerned about the remaining US sanctions.  Those sanctions are proving a strong disincentive to such insurers providing cover for permitted EU-Iran trade."


Clyde & Co, Chris Hill, London, Europe, Asia-Pacific

Intelligent Insurer