In a recent Reinsurance Update, we discussed the New York State Department of Financial Services’ (“DFS”) inquiry relating to non-US reinsurers and compliance with newly-expanded US sanctions against Iran that went into effect at the beginning of July under the Iran Freedom and Counter-Proliferation Act of 2012 (“IFCPA”).

Initially, the inquiry was limited to 20 non-US reinsurers that had applied to DFS for a designation as “Certified Reinsurers” subject to reduced collateral requirements when providing coverage to New York insurance companies. It was clear that that DFS had no specific suspicion about those 20 reinsurers, but was using the Certified Reinsurer designation as a “jurisdictional hook” to continue its broad inquiry into Iran sanctions compliance by financial institutions around the world.

On July 24, DFS significantly expanded its reinsurance probe by issuing Circular Letter 6 to “All Accredited Reinsurers Writing Business in New York State” – a list of more than 100 additional reinsurers. According to the Circular Letter, DFS is interested in IFCPA compliance because the sanctions issued against a reinsurer that doesn’t comply “could jeopardize the ability of any involved insurer to conduct business in the United States.”  

The Circular Letter requires the following information from every company:

  1. Identify all lines of business, or any other insurance service, that you, your parent(s), affiliates or subsidiaries write or provide, that may be subject to sanctions under the IFCPA.
  2. Explain all policies and procedures in place to ensure compliance with the IFCPA.
  3. Provide the Department with representative copies of the relevant compliance policies and procedures.
  4. Explain how, when underwriting a policy, you ensure that your underwriters correctly ascertain whether the policy may cover transactions that are prohibited by the IFCPA. Include within your answer how, and to what extent, representations made by a potential insured are verified.
  5. Explain what information you require an insured to provide to you regarding each shipment covered by a maritime policy, including: (1) the port of origin of the shipment; (2) the nature of the goods being shipped; and (3) whether the shipment involves or is the for the benefit of a SDN.
  6. Explain what rights you have to verify whether an insured’s representation about the nature of cargo insured under a marine policy is accurately represented and state the number of time in the last three years that you have exercised those rights.
  7. State whether, following the news reports concerning the Glencore Xstrata and Trafigura, you reviewed your in-force policies to determine whether you insured any of the reported transactions. If yes, please indicate whether you conducted the review before the receipt of this letter and the nature of your review.
  8. Produce a copy of every policy issued by you, a parent, affiliate or subsidiary, to Glencore Xstrata or Trafigura that remains in force on or after July 1, 2013.
  9. Identify any instance in which you have invoked a sanctions clause to refuse payment of a claim. For each instance, please explain how you became aware of the claim and how the claimant responded, and state whether you currently insure the claimant.
  10. List all insureds that you have identified as potentially engaging in business with Iran or any entity or person affiliated with Iran.

Although DFS has no direct authority to enforce the IFCPA or other Iran Sanctions, it is clear from the DFS actions against with Standard Chartered Bank, Bank of Tokyo Mitsubishi-UFJ and Deloitte Financial Advisory Services that DFS would be willing to challenge a reinsurer’s accredited status in order to impose fines or other remedies if it found what it viewed to be problematic activity.