Newsletter Sign-up

By DAN REYNOLDS, senior editor of Risk & Insurance®

From a premiums earned standpoint, the next wave of U.S. sanctions aimed at Iran is sure to have consequences for shipping industry mutual insurance companies.

Both bills are intended to punish Iran for ignoring the international community's call to stop its development of a nuclear weapons program.

The two bills, which must now be reconciled before being signed into law by President Barack Obama, seek to expand the universe of businesses sanctioned by the U.S. government should these business want to do business with Iran. The White House, according to experts, was at first ambivalent about the sanctions but is now leaning toward signing some version of them into law, according to published reports.

That expanding universe includes companies that insure and reinsure merchant vessels, which transport refined petroleum products, mostly gasoline, back into Iran.

Iran, which produces 4.17 million barrels of oil per day, ranks fourth in the world in the amount of petroleum that it produces, according to the CIA. Iran also has the world's third-largest oil reserves, with 136.2 billion barrels.

Where the congressional acts come into play is when that Iranian petroleum is shipped offshore as crude oil, refined abroad and then returned to Iran as gasoline for domestic consumption.

One of those groups sure to be affected by the sanctions is the New York-based American Steamship Owners Mutual Protection and Indemnity Association Inc., which stands to write less business if insurers are precluded from covering ships carrying gasoline to Iran.

The association is one of 13 mutuals that make up the International Group of P&I clubs, shipping insurance mutuals based in London, Tokyo and other major shipping centers.

Together, the clubs claim, they provide protection and indemnity insurance for 90 percent of the world's shipping.

Officials with P&I clubs in New York and London declined to comment.

But according to its Web site, the steamship association, or what's also called the American Club, offers members cover for up to $1 billion in oil pollution claims and $5 billion in nonpollution claims.

Following February renewals, the American Club's total tonnage stood at some 15 million gross tons. Premium income stood at some $110 million.

Standing in the way of the sanctions being proposed by Congress is not popular, so much so that the insurance industry barely mounted a lobbying campaign against the sanctions in either chamber of Congress, according to Pieter Van Tol, a managing principal in the New York office of Lovells, the international law firm.

"I think a lot of insurers didn't even want to be involved in the lobbying process," Van Tol said.

Nor did the shipping industry.

"This is not an issue that I would impress our members that we engage Congress on," said Joe Angelo, the deputy managing director of the Arlington, Va.-based U.S. branch of the International Association of Independent Tanker Owners (INTERTANKO).

Van Tol, however, believes that the sanctions may have some constitutional or, at the very least, legal issues.

"How is it going to apply in terms of a start date?" said Van Tol.

"There is nothing in the bill that talks about retroactivity. It would seem obvious that it couldn't commence until a date certain in the future. But then again in the insurance world, we are dealing with contracts that would have been entered into pre-sanctions, and there is nothing in the bill about that and how that is dealt with," Van Tol said.

The bills also direct the president in how he should enforce the laws, a dynamic which may be problematic from a constitutional standpoint, Van Tol added.

Generally speaking, Congress writes the laws and the president and his appointees enforce them, but Congress doesn't have the authority to tell the president how to enforce.

February 9, 2010

Copyright 2010© LRP Publications