22 March 2016 TO ALL MEMBERS Dear Sirs IRAN TRADING – P&I COVER UPDATE Introduction Members are referred to our Circular dated 24 February 2016 [5:525] concerning Iran sanctions. This Circular is intended to update Members on the latest developments in relation to the interim and longer-term solutions to the reinsurance recovery shortfall risk under the Group General Excess Loss reinsurance programme and Hydra retrocession programme. 1. Discussions with the US Administration Since the formal implementation on 16 January 2016 of the Joint Comprehensive Plan of Action (JCPOA) agreed between the P5+1 countries and Iran, the Group has been continuing its engagement with the relevant departments within the US Government (the State Department and the Treasury Department’s Office of Foreign Assets Control (OFAC)) to discuss the P&I insurance ramifications of the implementation of the JCPOA. The implementation of the JCPOA in January 2016 resulted in the lifting of: (a) The nuclear-related EU sanctions which had impacted Iran trade and the insurance thereof (with the exception of some continuing prohibited trades and trading by, and with, SDNs), and (b) the nuclear-related US secondary sanctions, which impacted non-US person insurers/reinsurers. However, the US Administration did not undertake under the JCPOA to lift, nor has it lifted, the primary US sanctions which prohibit the provision of insurance/reinsurance cover by US-domiciled reinsurers. - 2 2. Insurance cover solutions In its discussions with the US Administration, the Group has maintained its primary contention that it is in the policy interests of the US Government that US-domiciled reinsurers should be licenced to participate on the Group and Hydra reinsurance programmes. Over the next several months, the Group will be continuing its engagement with the Administration on this issue with the objective of securing a formal licence to allow such participation. Such a licence will be the most effective long-term solution to the problem of ensuring the availability of full, global, P&I coverage for shipowners. The proposed licencing solution does, however, raise fundamental policy questions for the US Administration and, as a result, licencing is unlikely to offer a “quick fix” to Clubs’ shortterm abilities to offer adequate, sustainable and effective insurance cover for their Members in relation to liabilities involving Iranian interests howsoever, or wheresoever, these might be incurred. Depending on the outcome of those discussions, the Group will, for the next policy year, also review the on-going participation of US-domiciled reinsurers in the Group and Hydra reinsurance arrangements. In the meantime, and as previously advised to Members, in an effort to find an interim solution to facilitate a resumption of lawful trading with Iran, the Group has, with the assistance of its brokers, been investigating the possibility of placing a “fall-back” reinsurance programme. This programme is designed to respond to reinsurance recovery shortfalls resulting from the inability of USdomiciled reinsurers on the Group GXL and Hydra reinsurance programmes to make payments due to the continuing application of US primary sanctions. Subscription to such a programme would necessarily be confined to non-US reinsurers. The major concern of those reinsurers which have been approached has been a fear that participation in such a programme would be deemed by the US as unlawful “facilitation,” or a deliber