2014 was a busy year for (re)insurers responding to developments in sanctions. The greater use of sectoral sanctions created challenges for (re)insurers, as did the pace and significance of some changes made to established sanctions regimes.

In this article, we look at the current state of play in some key sanctions regimes and the implications for (re)insurers.

1. Russia: Movement to sectoral sanctions

In response to the destabilisation in Crimea and Ukraine, the EU and US introduced “sectoral sanctions” which are designed to focus on key business interests in Russia and to complement traditional asset freezing measures.

Defence

EU sanctions prohibit (re)insurance in connection with the supply of items on the Common Military List and export credit insurance for “dual use” military goods. US sanctions prohibit US Persons (primarily US incorporated companies and citizens) from engaging in transactions involving the long-term debt of Russian defence sector companies.

Finance

EU and US sanctions restrict the ability of certain Russian banks to access international finance. In September, the EU and US acted in concert to reduce the maturity of targeted financial instruments from more than 90 days to more than 30 days.

Energy

Both regimes banned the supply of specialist equipment and technology for use in Arctic, deep water and shale oil projects in Russia. “Associated services” have also been restricted, such as drilling, well-testing and the supply of specialist floating vessels for use in such projects.

2. Crimea: In tune with Russian sanctions

The EU’s first response to the situation in Crimea was to impose a ban on EU persons importing certain goods originating in Crimea and Sevastopol, and the provision of related (re)insurance.

In July, the EU imposed a ban on the supply of certain goods (and the provision of related financing/financial assistance) for the following sectors:

  • Transport
  • Telecommunications
  • Energy
  • Oil, gas and mineral resources

In December, the previous measures were largely replaced with more extensive sanctions targeting the same sectors as well as additional prohibitions in relation to:

  • Real estate (and broad ranging investment) in Crimea and Sevastopol
  • Tourism activities and cruise services in Crimea and Sevastopol

The EU has now implemented a grace period of until 21 March 2015 for certain prohibited activities whilst allowing other contracts to run off.

The US has imposed similar measures, broadly prohibiting US Persons from investing in or trading with Crimea. The US issued a General License providing US businesses with until 1 February 2015 to wind down any prohibited operations.

3.  Cuba: Changing the music

There was a marked change in tone between the US and Cuba in December2014, when a deal was reached after over half a century of a full US trade embargo on Cuba. Historically, Cuba has presented a challenge to the worldwide (re)insurance market because the US prohibits US (re)insurers and their foreign subsidiaries from participating in Cuban risks.

The US has now implemented a variety of new policy changes including:

  • Authorising US certain exports to Cuba of materials, tools and equipment for residential construction, private sector farming and entrepreneurs
  • Permitting US financial institutions to open correspondent accounts at Cuban banks to facilitate the processing of authorised payments
  • Authorising exports of communications equipment (including for the internet)
  • Allowing global insurance policies for health, life or travel cover for individuals on permitted travel to/within Cuba

4.  North Korea: A prelude for further sanctions?

In response to the alleged cyber-attack on Sony Pictures, a US asset freeze has been imposed on officials, agencies and controlled entities of both the North Korean government and the Workers’ Party of Korea. US (re)insurers are prohibited from participating in cover provided to persons subject to the US asset freeze.

5.  Syria: Nothing to note

There were no significant changes to the EU and US sanctions regime on Syria.

6.  Iran: One more JPOA interval

Last year the joint plan of action talks continued between the P5+1 (being US, Russia, China, UK and France plus Germany) and Iran concerning the future of the latter’s nuclear programme. After the parties failed to reach an agreement by November, the deadline was extended to 30 June 2015.

The EU’s suspension of its prohibition on the provision of (re)insurance in relation to the transport of Iranian origin crude oil will continue during the interval in talks until 30 June. The EU has also increased the threshold in relation to the transfer of funds to/from Iran before authorisation must be sought from the relevant competent authority. The relief under US sanctions is similarly continued until 30 June, but largely applies only to non-US (re)insurers.

Even if an agreement is reached, there may only be a gradual unwinding of sanctions, which would require (re)insurers to focus on each milestone to see what opportunities were presented.

7.  Finale

The introduction of sectoral sanctions was a significant  step change by both the EU and US, representing a novel, calibrated approach to achieving foreign policy objectives in contrast to blanket embargoes and pinpointed designations. They will no doubt remain an important instrument in the EU’s and US’s repertoire of diplomatic responses and we expect to see increasing use of this tool in future.

For now, the tempo and scope of changes – whether restrictive or liberalising – have created an increasingly complex sanctions framework, with which (re)insurers must continue to comply.

(Re)insurers should therefore be tuned in to further developments this year and, in the meantime, continue to mitigate their exposure to sanctions through risk sensitive due diligence and appropriate sanctions exclusion clauses.