Iran comes in from the cold
As a country richly endowed with natural oil and gas, and with a population of more than 77 million – half of whom are under 35 – it’s no surprise that Iran’s re-emergence on the world economic stage, following the removal of UN sanctions, is causing ripples of excitement for western businesses. “Iran is a huge economy with a clear understanding of insurance and risk,” says Richard Halstead, Hiscox London Market’s Underwriter for War, Terrorism and Political Violence. But while sanctions may have been lifted, the London Market still finds itself hamstrung by the unwillingness of international banks to process Iranian business.
Iran is a huge economy with a clear understanding of insurance and risk.
Emerging from the shadows
Earlier this year, Iran’s economic and political isolation ended when UN sanctions on it were lifted. First imposed in 2006 by the United Nations Security Council in a bid to check the country’s nuclear ambitions and finally removed in 2016 (although US primary sanctions remain in place), the end of the UN sanctions programme could be a huge opportunity for the London Market.
“The opening up of Iran has come at a very interesting time for the marine and energy business. If oil was trading at US$100 plus a barrel, there might be less excitement. But given the market conditions, Iran represents a rare opportunity to make a real difference to grow the premium base,” says Charles Rawlins, Marine and Energy Line underwriter for Hiscox London Market.
“Ten years have passed, which means we’re lacking an up to date technical oversight of these risks.”
Given the potential, Lloyd’s is in a great position to exploit Iran’s possibilities. “As a centre of global capacity and expertise for marine and energy risks, London is an obvious destination for Iranian risks,” says Rawlins. “We’ve already seen slips being passed around the market canvassing opinion.” Which is not to say that there wouldn’t be underwriting challenges to overcome, he cautions. “Ten years have passed, which means we’re lacking an up-to-date technical oversight of these risks. For energy installations that pre-date sanctions, we don’t know how well they’ve been maintained in the intervening period, while for new oil fields developed since sanctions kicked in, we can’t be sure of the operational quality. And we don’t know what the losses have been like.”
Economic growth takes off
Aviation could be another area of growth, with Air France already running regular flights to Tehran and British Airways to follow in July. “The introduction of new routes and airlines flying to Iran will really speed up the economic growth in the country,” says David Slevin, Head of Aerospace and Specialty at Hiscox London Market. Boeing and Airbus have also signed understandings to supply Iran’s ageing fleet of aircraft, although, as Slevin says, it will take a while for that to be replaced as the worldwide backlog for aircraft is huge.
Terrorism and political violence is another obvious coverage for Iranian risks, adds Hiscox’s Halstead. “The risk level there is comfortable for us, we can definitely underwrite business; although political violence might be a challenge because the Iranian authorities will downplay the risk.”
The banking block
Despite the optimism, it is still very hard for insurers to do business with Iran given that no major UK bank will currently deal with Iranian business. In an interview at the Royal United Services Institute in March, Mohammad Nahavandian, the Chief of Staff to President Hassan Rouhani, said: "Big banks are still worried about primary sanctions from the United States... [even though] non-US banks should not be limited in any kind of banking transactions with Iranian banks.”
The problem with banking centres on the remaining US primary sanctions, which still preclude US firms from doing business with Iran, explains Mark Welbourn, a Partner at international law firm Kennedys. “If an insurer [of any non-US nationality] was seeking to make a payment to Iran in US dollars, it would clear through a US depository institution at some stage and therefore, even if for no other reason, be in breach of the US sanctions regime.”
One answer is to trade in another currency such as euros, although banks are still cautious says Welbourn. “Even where payments are made in euros – with certain exceptions allowed by EU legislation – there is a [perceived] risk in doing so and banks just don’t want to take that risk. There are ways of working around it: you can be compliant and still pay a claim in Iran, but it’s just more difficult and there is lots of risk from stepping in the wrong direction. Banks and lots of US-parented insurers are still avoiding anything that touches Iran.”
"Banks and lots of US-parented insurers are still avoiding anything that touches Iran."
Aside from banking, there are concerns that sanctions could be re-imposed on Iran should it renege on any of its commitments under the nuclear accord. But this shouldn’t be an issue, Rawlins feels. “The ‘snap-back’ clause in the deal wouldn’t be particularly onerous to London insurers given there is no real capital outlay in establishing a physical presence in Iran. There could be problems around having to reserve for losses, in that the market wouldn’t be able to pay until sanctions were again lifted, but the threat of sanctions returning shouldn’t be a bar to London getting involved.”
Ultimately, London’s insurance sector depends on resolving the banking issue before it can make real inroads into Iran. “Until the banks come to some sort of agreement to handle euros generated from Iranian business, nothing will happen,” says Rawlins. But change will come, adds Welbourn. “There is more understanding and knowledge of the new sanctions regime and how it is possible to comply with it. The banks will hopefully gain comfort in knowing that they can work through the sanctions regime. It is a big market and there will be demand from customers to do business there and there will be demand for banks to facilitate that.”
Leadership is needed
To speed the process, strong leadership is needed from both the UK government and within the London Market itself, argues Halstead, or otherwise Iran is more likely to be a longer term opportunity measured in “years rather than months.” This view is echoed by Iran’s Mohammad Nahavandian, who implies that if the UK takes too long it could find itself at the back of the queue: "Those who act quick[ly] get the best results."