The International Group of P&I Clubs has reached a compromise with the US Treasury’s Office of Foreign Asset Control (OFAC) for the provision of reinsurance for shipowners for liabilities involving Iranian interests, and has gained approval for an interim “fall-back” reinsurance coverage programme for its members.
The Group maintains reinsurance risk pools for large losses. These pools, including the International Group Excess of Loss (Group GXL) programme for claims above US$80 million, involve the participation of US-domiciled reinsurers the American Club; GXL’s operations also have a US presence. Given the involvement of an American entity in the programme, continued US primary sanctions raise questions about the liabilities for the other 12 member clubs of the International Group over GXL claims involving Iranian assets or cargoes, as the sanctions forbid the American Club’s participation in such claims.
The Group has asked OFAC for a formal licence to let the American Club participate in GXL’s pooled coverage, including Iran-related claims, but OFAC remains concerned. The Group expects that a licence will not be issued for some time; it intends to review the continued participation of American reinsurers in GXL, in light of ongoing discussions with OFAC.
In the interim, however, the Group said it has created and put in place a workaround “fall-back” insurance programme, with OFAC’s approval, to provide reinsurance in the event that losses cannot be recovered under existing programmes (if American reinsurers under primary sanctions are unable to pay).
The Group has warned that the fall-back programme is intended to be a temporary solution, though, and will not be as fully comprehensive as GXL. “Because of the cover limit . . . there is a risk that the cover could be exhausted by several very significant Iran-related liability claims, or an aggregation of smaller claims up to the overall current policy limit of €140 million (2x €70 million). Consequently, the cover is not a ‘like for like’ replacement of the cover currently available under the Group GXL and Hydra reinsurance programmes,” the Group said.
Claims payments may be hindered
Wider financing problems faced by Iran – with international banks still wary of dealing with it – are still expected to have an impact on claims payments.
“For even a routine claim, I expect it to be quite difficult to process the payment for Iran,” Mr Mr Mike Salthouse, Deputy Global Director with the North of England P&I Association told Reuters. “Because sanctions are enforced so robustly, everyone is acutely aware of their obligations and there is a huge amount of caution in dealing with anything Iranian.”
“Iran is the second largest economy in the Middle East and the easing of sanctions clearly provides huge opportunities for all marine insurers, other than those based in the US,” Mr Jonathan Hare, Senior Vice President and General Counsel, Skuld told Middle East Insurance Review.
He added that besides ensuring that banks will process payments between Iranian insureds and their Europe-based insurers, another challenge would be “putting together a comprehensive reinsurance programme without relying on US reinsurers who remain subject to primary sanctions”.
The Group aims to have a permanent solution in place for 2017 at the latest.