New US sanctions on Iran put the industry on high alert

In December 2009, the US congress backed plans to impose sanctions on Iran that include an insurance and reinsurance ban for Iranian tankers as part of the Iran Refined Petroleum Sanctions Act.

The Act was passed by the House of Representatives by 412 votes to 12. Meanwhile, the United Nations (UN) has also jumped on the bandwagon, with a resolution looking increasingly likely since Russia indicated that it would withdraw its original objections to sanctions.

Russian president Dmitry Medvedev said on 2 March that he still hoped to avoid new punitive measures, though added that Russia could not wait forever for co-operation from Tehran.

"We are optimists and we are not losing the feeling that we may achieve success," Medvedev said. "Nonetheless, if it doesn't work out ... Russia is ready to consider with our other partners the question of introducing sanctions."

Israel also voiced optimism that China would not veto any new UN Security Council sanctions, saying that Beijing had listened attentively to a visiting Israeli delegation.
Both Russia and China have been reluctant in the past to endorse broader sanctions against Iran.

A draft fourth Security Council resolution was expected within days as Reinsurance went to press.

International insurers and reinsurers that transact business in the region are also beginning believe that further sanctions will be imposed on the country, with many announcing that they will not be renewing business in the region.

Pulling out

Munich Re and Allianz have both announced that they will not renew existing reinsurance business or write any new business with insurance companies in the country.

Allianz said in a statement: "[The company] has decided not to renew insurance treaty business in Iran because of political developments in the region. This business amounts to negligible premiums."

The decision would hit Munich Re's premium volume by about €10m annually, according to newswire Reuters.

Hannover Re has confirmed that it conducts reinsurance treaty business in the region but has said that it will only continue to do so if it complies strictly with UN and European Union sanctions.

Zaineb Al-Assam, head of MENA forecasting at Exclusive Analysis, commented: "The potential for tightening sanctions on Iran is a major concern for underwriters at Lloyd's. Aside from US or UN sanctions, businesses and financial institutions including Lloyd's will regardless have to contend with US diplomatic pressure to cease supporting trade with Iran. This pressure is increasing all the time. Businesses are, in many cases, having to choose between their interests in the US and Iran. This pressure is therefore also making it difficult for Iran to obtain foreign investment, especially for their industrial plans. In the oil and gas sector, where there is more interest on behalf of foreign companies, international oil companies are ceasing or holding off on new projects, however they are pausing rather than pulling out altogether.

"A UN resolution looks more likely this year. [US president] Obama gave Iran a deadline to show co-operation by the end of 2009 and the country has not met this, therefore the US sees now as the time to push this fourth resolution."

Alan Gourley of Crowell & Moring highlights that insurers and reinsurers should already be taking notes of current sanctions imposed by the US rather than just worrying about the amendments that may come: "Where coverage extents to a sanctioned company then the (re)insurer will have to worry about violating the sanctions should there be a claim, for example on a global policy on which there is no exclusion clause for Iran. Because it is fairly hard for (re)insurers to know, the government has traditionally been lenient.

"The extension to the sanctions will expand the definition of companies' involvements and says that it will sanction insurers and reinsurers of those importing refined petroleum products."

The proposed extension to the sanctions mean that any company selling refined oil, or products to refine oil, will go on a sanctioned list and will not be able to gain access to US financial products. This will include non-US companies and apply to any US person, no matter which company they work for.

Gourley continued: "The sanctions may not look like much to the insurance industry on the surface but they are a potential threat. The current sanctions are treacherous but manageable, yet the new broadened sanctions could apply to many more people. The US has never actually imposed existing sanctions on a foreign entity - they have always been wavered - but now, wavering the sanctions will become more difficult because it will have to be run past congress, which will wreck havoc in the international markets."

Al-Assam also highlights that, should the situation between Iran and the US continue to escalate, the general risk profile of the Middle East region may also shift. She says: "The last thing the GCC wants to see are things escalating. If things reach boiling point then it could spark Iranian retaliation on US bases in the GCC. However, war is not the most likely option: more a last resort."