​ What does 2016 hold for US and EU (re)insurers writing business in Iran?

On 8 October 2015 the Joint Comprehensive Plan of Action (JCPOA) was formally adopted, setting out a framework for the phased removal of UN, multilateral and national sanctions against Iran.

The Joint Comprehensive Plan of Action (JCPOA) envisages a phased lifting of UN, EU and US sanctions related to Iran’s nuclear programme in exchange for Iran’s agreement never to “seek, develop or acquire any nuclear weapons”.

Although the specific date on which the sanctions will be lifted is not yet known, the ‘Implementation Day’ – when the first phase of sanctions will be suspended or terminated – is expected early in 2016, when the International Atomic Energy Agency (IAEA) will be in a position to verify that Iran has implemented key nuclear-related measures described in the JCPOA. However, given the complexities of the modifications required at Iran’s nuclear plants, this could be delayed.

For (re)insurers looking to do business in Iran, this changing regime will create some uncertainty, so what will be the key areas of potential sanctions risk in the coming year? One thing is certain, the discrepancy between the US and EU positions is significant.

The EU position

The EU has now issued regulations that will take effect on Implementation Day, and existing EU sanctions against Iran in relation to the following will be lifted:

• the provision of financial, banking and insurance services
• oil, gas and petrochemical sectors
• shipping, shipbuilding and transport sectors
• gold, precious metals and banknotes/coinage
• asset freezing measures against specified entities and individuals.

However, certain sanctions will remain in place for the time being. These include restrictions relating to the sale, supply or transfer of:

• graphite and other metals
• military goods
• goods relating to Iran’s nuclear industry.

Furthermore, existing asset freezing measures against certain entities and individuals will remain in place.

The US position

The US has committed to waive or terminate most sanctions that apply to non-US individuals and companies, or “secondary” sanctions. However, sanctions that apply to US individuals and companies will remain largely unchanged. The corresponding waivers of statutory sanctions have already been issued by the US government and will become effective on Implementation Day.

The US has also committed to:

• terminate sanctions set forth in certain presidential executive orders
• remove some 400 individuals and entities from the US blacklist
• license limited trade activities between the US and Iran, including granting licences to foreign subsidiaries of US entities to perform otherwise sanctioned activities.

 

Being aware of the challenges

Whilst the relaxation of EU/US sanctions is likely to create substantial opportunities for re/insurers, change always brings with it challenges as well as opportunities, so businesses should be alert to some of the points below when looking to engage in business in Iran post Implementation Day.

Commercial realities

As a result of the US position, it is likely that a number of EU entities with US operations, (for example, EU banks), may remain reluctant to do business in Iran for fear of falling foul of the remaining US sanctions regime.

‘Snapback’

Under the terms of the JCPOA, the EU and US may re-impose sanctions in the event of non-compliance by Iran with its obligations. This provision will create some uncertainty and additional risk for any re/insurers taking long term views on Iranian risks.

Scope of US licences

The US has agreed to grant licenses in relation to: (i) the sales of US aircraft and related parts and services to Iran; and (ii) the import of Iranian rugs and foodstuffs.

In addition, licences will be granted to US-owned foreign subsidiaries, to allow them ”to engage in activities with Iran that are consistent” with the JCPOA. However, it currently remains unclear exactly what these foreign subsidiaries will be permitted to do under the terms of the licence.

Facilitation risk

The disparity between the EU and US position means that US parent companies may face a risk of engaging in prohibited facilitation under US sanctions in relation to (re)insurance written by their EU subsidiaries. In addition, as is the case under current US sanctions, such subsidiaries may continue to be prohibited from writing certain business, despite being permitted to do so by the EU.

USD contracts

Contractual wire transfer payments in USD must clear through the New York banking system. Therefore, any policy written by EU re/insurers in USD will have a US touchpoint and be subject to the remaining US sanctions.

SEC reporting

US legislation requires issuers listed on US stock exchanges to disclose to the US Securities and Exchange Commission (SEC) certain transactions it, or its affiliates, has conducted with Iran or sanctioned entities. Therefore, non-US (re)insurers that are US-listed and/or whose parent is US-listed, will still be subject to US reporting obligations as a result of Iranian business.

Looking forward

Whilst the JCPOA represents a historic change in relations between Iran and the West, there is a clear divergence between which US and EU sanctions will remain in place post Implementation Day. Although the potential opportunities for those wanting to re-enter the Iranian market are substantial, (re)insurers should be mindful of the sanctions exposures that remain in place and take appropriate measures to manage these risks.

 

Written by Chris Hill, Partner, Clyde & Co LLP, and Douglas Maag, Senior Counsel, Clyde & Co US LLP