Insurance Industry Faces More Pressure on Iran

According to a statement by Munich Re, "Due to the political situation in Iran, Munich Re has decided to not renew existing business or write any new business with insurance companies there."

Most of the heat is coming from the U.S., which already has a law against direct U.S. investment in Iran. A new measure, the proposed Iran Refined Petroleum Sanctions Act of 2009, would put tougher sanctions into play, both for U.S. and foreign companies that are effectively a step removed from Iran – i.e., those that do business with companies that do business with Iran's energy sector. The legislation has already passed the House of Representatives and the Senate, though in different forms.

In California, the state insurance commissioner has requested that 340 insurers licensed in the state ditch their holdings in companies that conduct business with "sensitive sectors" in Iran. Further, the state has noted 50 companies that do business in Iran, including Siemens (SI) and Royal Dutch Shell (RDS). The state estimates that insurers licensed there have invested approximately $6 billion in these companies.

For insurers and reinsurers, says Jon Biasetti, a partner at Locke Lord Bissell & Liddell LLP, this has led to some confusion, as California's requirements aren't consistent with what these carriers face in the states where they are domiciled. But, they're paying attention, he says to Business Insurance, "Because no one wants to suffer the reputational damage of being called out by any regulator, be it federal or the California Commissioner of Insurance, for not complying with disclosure requirements or requirements to divest" from companies doing business in Iran.

The Pennsylvania insurance commissioner has come out in support of his California counterpart, and Biasetti believes that other states will follow suit. If the federal legislation passes, it would allow state regulators to impose penalties for Iran-related investments, a role that the feds usually play.

For the insurance and reinsurance industries, some uncertainty remains. Even if they don't write any new business, they are unclear on whether long-tail policies written in the past would fall under the new legislation. If old business currently being serviced is prohibited, insurers and reinsurers could either honor their obligations and face sanctions from the U.S. or give up the business and risk being sued for breach of contract. Legal observers do say that the carriers could be covered, as they can't provide insurance that would break an applicable law, though the situation could nonetheless get ugly, especially since sanctions wouldn't necessarily constitute a legal justification.

Insurers may have time, though, as reconciliation and signing by the president aren't expected to be swift, as the Obama administration is working toward multilateral sanctions against Iran with the UN.