The International Group (IG) of P&I Clubs has warned Club members that there is the potential for significant reinsurance shortfalls, in circumstances where a Club covers a claim with an Iranian nexus, following the re-imposition by the US of sanctions on Iran.
The US decided in May to withdraw from the Joint Comprehensive Plan of Action (JCPOA) Agreement signed by China, France, Germany, Russia, the UK, the US, the EU and Iran. The US has re-imposed sanctions on Iran that had been lifted or waived under the JCPOA with the second and final wind-down period having ended on 4 November 2018.
The IG said in a circular issued in late November, “Following the end of the wind-down period, there may still be some limited trade with Iran that is possible for non-US persons to undertake without a significant risk of violating US secondary sanctions (for example, the carriage of certain agricultural commodities, consumer goods and foodstuffs). Members should be aware, however, that even if the trade does not appear to violate US sanctions, practical difficulties mean that it is extremely unlikely that International Group Clubs will be in a position to make or receive payments, provide security or respond to any claims in the usual manner.”
The circular added, “For the 2018/19 policy year, individual IG Clubs retain the first $10m of liabilities arising from an incident. Between $10m and $100m, liabilities are shared between all 13 International Group Clubs (the Pool). If any of the 13 International Group Clubs is prohibited (by sanctions applicable to that Club) from contributing their share of any Pool claim, the individual Member will bear that shortfall in accordance with the applicable Club’s rules.”
The circular also said, “Liabilities above $100m fall within the IG’s Excess Loss Reinsurance (GXL) programme. In respect of a claim which engages the GXL programme, any sanction-related shortfall which arises in relation to a liability for which the Club is not directly liable under an approved certificate or guarantee (so-called non-certificated liabilities), is not automatically re-pooled by the IG Clubs and will be borne by the Member under the applicable Club’s rules… As a consequence of the withdrawal of General Licence H (which applied to non-US domiciled affiliates and subsidiaries of US domiciled insurers and reinsurers), a significant minority of reinsurers will no longer be able to rely on that Licence to contribute to claims with an Iranian nexus.”
In addition, the IG said the practical difficulties encountered by insurers are also likely to be faced by Club members when it comes to, for example, making or receiving payments in relation to Iranian trade in view of the inability or unwillingness of banks to handle monetary transactions with even a remote nexus with Iran.
The IG noted too that there are reports that eight countries – China, India, Italy, Greece, Japan, South Korea, Taiwan and Turkey – have or will be granted waivers from the US so that they may continue to be permitted to import limited amounts of Iranian crude oil. The waivers or Significant Reduction Exemptions (SRE), do not extend to other commodities. It is further understood that countries holding SREs are being advised by the US administration to import Iranian crude only on vessels owned by the Iranian shipping companies, NITC or IRISL, or on vessels registered in the country holding the SRE and only where those vessels are insured under a sovereign guarantee issued by the government holding the SRE.
The 13 P&I Clubs, which comprise the IG, between them provide marine liability cover (protection and indemnity) for approximately 90% of the world’s ocean-going tonnage. M