The US sanctions that are still in place are negatively impacting the risk appetite for Iran-related business, according to 85% of London market insurance professionals.
This is according to research carried out by Clyde & Co, the global law firm, Intelligent Insurer reported.
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 authorizes 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.
More Willing to Take Risks
The research found that despite the remaining US sanctions causing uncertainty in the market, over two-thirds (67%) 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 insured 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. The risks of getting this wrong are substantial so extra caution is required before entering any contracts.
