Insurance: Indian ships to lose insurance due to Iran sanctions, may look to China

Indian companies will find it difficult to obtain replacement insurance coverage to continue to import Iranian crude oil by new EU sanctions come into force, industry sources said.

State-run Shipping Corporation of India, the largest tanker owner in the country, the EU will lose its insurance coverage for tankers operating in Iran from the first July, in which European insurers will be prohibited from indemnifying ships carrying Iranian oil.

Indian maritime companies are likely to be hardest hit in Asia of the penalties which the other two major buyers of Iranian crude, not China and Japan, do not trust the European insurance companies, but are covered by national providers.

India, China and Japan is Iran's three largest oil purchasers.

"We are covered by P & I clubs in the EU," Sunil Thapar, Director, Shipping Corp. of India told Reuters, referring to customer-owned Maritime Protection and Indemnity insurance groups.

"These clubs will not be able to provide us with cover for vessels to Iran from July. It will be difficult for Indian shipping companies to transport Iranian crude, unless alternative arrangements are made," he said. SCI owns 39 oil tankers.
Fewer opportunities

. P. Moller-Maersk, Singapore-based SAMCO Shipholding, and many other international maritime companies have halted new agreements with Iran, leaving Asian oil importers to rely more on domestic and state-run companies to manage shipments from Tehran.

All but one of the international P & I clubs, which together cover 95 percent of the world's tankers from contamination and personal injury claims covered by the sanctions because they are based in Europe or America.

That leaves India companies with few options - Japan P & I clubs, insurance companies in China, Russia and the Middle East or Singapore and Hong Kong.

Iranian insurance coverage is not an option, as sanctions against the country's financial system makes it impossible to collect payment, there should be a requirement, says Jim James, a Hong Kong-based lawyer with law firm Norton Rose.

"We continue to offer insurance for oil tankers. It does not matter whether vessels calling at Iran," said an official with Japan P & I club, which primarily provides coverage of national shipowners and represents about 7 percent of the global P & I coverage.

But switch to Japan P & I club can take months as members have to weigh the risk of a potential new player, especially one who wants to do business with Iran, maritime lawyers said.

The most likely alternative is China, which has a large enough market to provide the necessary insurance coverage.

"The Chinese market is a little different. You have some very large insurers, who may decide it is good business, and China is not included in this scheme," says Iain Anderson, a Singapore-based lawyer with Ince & Co.

"But they too dependent on the international reinsurance to spread risk. So unless they are willing to either lower their sights on the level of reinsurance security - or go network account on the risk -. They will meet the same problem"

Europe and the U.S. implements tougher economic sanctions in the hope of isolating Iran and forcing it to halt its nuclear program the West fears will be used to develop nuclear weapons.

Iran, the largest producer in OPEC after Saudi Arabia and is the world's fifth largest oil exporter, says its nuclear program is exclusively for peaceful purposes.

The sanctions have made it harder for Iran to sell its crude, and it will export a six-month low volume of fuel oil to East Asia in March. The amount will probably fall further as the EU embargo approaches.

Since fewer insurers are able to offer coverage, rates could go up significantly for tankers carrying Iranian crude oil, says Karam Jo, assistant manager for marine underwriting in Korean Re.

Singapore and Hong Kong insurance companies could also be opportunities, but many of them have ties to the West.

"It will also be very difficult for an Asian market insurer. They also have to be comfortable that their footprint around the world keeps them out of the current sanctions regime," Anderson said.

Tuesday, February 21, 2012

Indian ships to lose insurance due to Iran sanctions, may look to China

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