With the easing of sanctions, reinsurers are likely to be the first to re-enter Iran’s insurance market. Already, global heavyweights Munich Re and PartnerRe have signalled their intentions to get back into the game.
The move to lift economic sanctions against Iran after it agreed to comply with obligations under a deal with world powers has sparked a flurry of interest in its domestic market.
On January 16, the International Atomic Energy Agency (IAEA) announced that Iran had fulfilled its obligations under the Joint Comprehensive Plan of Action (JCPOA), signed with China, France, Russia, the UK, the US, Germany and the EU last July. This triggered the lifting of nuclear-related economic sanctions by the EU, including restrictions on Iranian trade, shipping and insurance. The US also dropped “secondary sanctions” banning third-country actors (ie, non-Americans) from certain trade and investment with Iran, including finance, banking and underwriting services.
Foreign reinsurers likely to take the first steps
“With the removal of restrictions, major reinsurers are anticipated to re-engage with the Iranian market,” said A.M. Best in a research note after the JCPOA was signed. “The country has significant oil reserves, and increased international trade is likely to stimulate an expansion of infrastructure and business development. Insufficient domestic reinsurance capacity will likely arise, presenting an opportunity for regional and international reinsurers.”
It said that while entry strategies for primary insurers will take considerable time, complicated by foreign ownership rules, “foreign reinsurers are likely to be attracted by the speed they can access the market, as they will not need to establish themselves locally in order to write business”.
A.M. Best added that the largest European reinsurers would be examining prospects in the market and “are expected to have a first-mover advantage over their American counterparts, as US sanctions are likely to remain in place for longer than European restrictions”.
Indeed, while US secondary sanctions have been dropped, primary sanctions (ie, those applicable to US persons and US companies) are largely unaffected. “This is an area that non-US businesses which are considering engaging in trade with Iran need to consider carefully, to ensure that they are not affected by these primary sanctions, for example because the transaction requires payments in US dollars to be made or received,” said a briefing note by law firm Holman Fenwick Willan.
The lack of clarity has left some companies cautious. For example, some Japanese oil refiners said they would continue to use government insurance to ship Iranian oil because of uncertainty as to whether US insurers can provide coverage, reported Reuters.
Preparing for re-entry
In addition to Bimeh Markazi Iran, which plays a dual role of regulator and reinsurer, two other reinsurance companies – Iranian Re and Amin Re – write domestic business. Still, opportunities exist for global reinsurers, “mainly in the field of catastrophe risks and exposure, as well as excess-of-loss treaties”, said Mrs Mina Sadigh Noohi, Vice President, Reinsurance of Bimeh Markazi.
In 2010, following calls for tighter sanctions against the country after the IAEA censured Tehran for its nuclear programme, Munich Re was one of a few reinsurers, which said it would suspend business dealings with insurance companies in Iran.
Munich Re is now “in the process of picking up the relationships we had in the market in the past before the sanctions were introduced”, said Mr Andreas Pollman, Client Management Executive, Non-life business, Middle East. “We are confident that we will commence business with Iranian insurance companies soon, definitely in the course of this year.”
PartnerRe has kept its client relationships in Iran “open and strong over the past years”, said Mr Salvatore Orlando, Head of High Growth Markets. “Our market and risk knowledge is therefore fully up to speed, we understand the industry’s requirements and we are ready to move forward with clients to find optimal risk and capital solutions and to work through the specific challenges.”
Lloyd’s of London has also announced that its managing agents can now offer insurance and reinsurance to Iran for oil and petroleum transportation.
Other reinsurers are adopting a wait-and-see approach. A spokesperson for Hannover Re said: “Iran presents potential opportunities for the reinsurance market. Demand should rise from infrastructure development or earthquake risks, for example. As long as there are still uncertainties regarding the impact on the Iran business, it is too early to comment about details at this stage of time.”
Demand for risk solutions
Given the catastrophe risks facing Iran, especially earthquake risk and in recent years, flood risk, there is expected to be significant demand for capacity for these exposures.
On the non-life side, “we intend to make all types of cover available for our clients, ranging from CAT covers to onshore/ offshore energy, engineering and operational covers, both treaty and facultative. We are also open to providing aviation and agriculture capacity”, said Mr Pollmann of Munich Re.
“In life reinsurance, we will be concentrating on risk products as Munich Re has worldwide experience gained over many years and an outstanding track record in both developing risk products together with our clients according to the market needs and assuming these risks on the reinsurance side. The same applies to facultative covers and CAT XL covers,” said Dr Laila Neuthor, Head of Client Management for the life reinsurance business in the Middle East.
For PartnerRe, “it’s not about opportunism or throwing capital at the status quo to gain market share”, said Mr Orlando. “Rather, our aim is to focus on supporting clients with a partnership that provides long-term, innovative capital and risk solutions across multiple lines, solutions that are adapted to their uniquely developing needs. For example, in addition to energy, marine, property, motor and aviation classes, new specialist agriculture and engineering products stand to make a real difference to Iran’s economy.”
Pure capacity aside, there is also expected to be high demand for expertise. “In many lines of business, especially engineering and speciality lines such as aviation and marine, local participants do not possess all of the information necessary to underwrite to their best advantage,” said Mr Soran Seyedi, Divisional Director, Global Risk Solutions with international broker RFIB in a recent article in MEIR.
Need for careful navigation
Given that some US sanctions remain in place, both insurers and reinsurers both need to tread cautiously.
Dr Neuthor said: “To ensure that we continue to comply with all applicable remaining sanctions, due diligence must be performed in our risk appraisal. Our aim is to find viable solutions that allow us to provide the market with both the capacity and the services linked to it that Munich Re is renowned for, on top of pure risk transfer. Knowing Iran from the past, we are sure that the high level of insurance knowledge and professionalism, and the strong sense of business will be major assets in tackling the challenges arising together.”
She added that Munich Re has no volume targets, “either for Iran or for anywhere else. Our objective is to rebuild strong, reliable and enduring partnerships in the market and with its players in life, non-life and health. We want to grow sustainably together with the market. And our clients should know that we are back and there to stay”.
According to Mr Orlando of PartnerRe, corporate governance is one key challenge that will face international insurers and reinsurers, in addition to others such as the US position on Iran, political risk in general, risk concentration and market stability. “It’s particularly important for the market to take on board the differences in corporate governance applicable in the international arena, especially those relating to financial compliance, operational efficiency and loss transparency. However, with strong relationships, these issues can be worked through and once partnerships are on equal footings, the way forward will be smoothed.”
Finally, companies should not expect the Iranian market to be “like a shop that has been closed for five years, and expect it to simply re-open for business”, said Mr Seyedi.
“The entire market has changed during the sanctions period. Regulation, market practice, and the way of doing business are all radically different than they were before…the re-made Iranian re/insurance sector will require careful navigation.”