Dr. Hemmati speaking at the 4th Intl Exhibition Exchange, Bank, Insurance
Dr. Hemmati speaking at the 4th Intl Exhibition Exchange, Bank, Insurance

Munich Re has recently entered into a reinsurance agreement with Iranian insurer Mellat Insurance. The contract which was finalized at the end of April 2018 will see Munich Re underwrite the entirety of Mellat’s life policies.

This deal is a big win for Munich Re since the reinsurer has been looking for opportunities to expand its global footprint. At the same time, the private Iranian insurance firm will also gain tenfold from this partnership as they will benefit from both client and investor confidence.

Insolvency due to the uncertainty of claims in the insurance industry is easily one of the biggest risks that insurance companies face. Proof that an insurance company can maintain financial solvency is therefore an invaluable badge in this industry.

Abdolnaser Hemmati, Chairman of the Central Insurance of the Islamic Republic of Iran said “Although our insurance penetration rate stands higher than the average in the Middle East and North Africa, it is still below global standards,”. He also added that the insurance industry grew by 22% in the last financial year, with the penetration rate currently above 2.1%.

“Although our insurance penetration rate stands higher than the average in the Middle East and North Africa, it is still below global standards,” 

Abdolnaser Hemmati

Service providers in the Iranian insurance industry currently consist of one government owned and 26 private insurance companies all providing direct insurance.

In addition to this there are two reinsurance companies that provide both direct insurance and reinsurance services.

All insurance providers in the country are regulated by the Central Insurance of Iran which recently allowed foreign investors to own up to 49% stake in Iranian insurance companies. This move is targeted as stimulating foreign investments in Iranian companies in a bid to help the country’s economy recover from the numerous sanctions they have been subjected to in the past.

Mellat insurance Company which is affiliated with Mellat Bank was one of the first insurance providers in Iran and is currently one of the biggest by market cap. With the recently unveiled banking crisis in Iran, Mellat Bank is hoping that this deal with Munich Re will help their insurance business cover losses that the bank is making.

It is worth noting that Mellat Insurance already had an existing agreement with SCOR – another top-performing global reinsurer from France. This agreement is different from that with Munich Re as it provides Mellat insurance with protection against excess of loss.

This means that Mellat Insurance is protected from insolvency in the event extreme losses brought about by claims due to natural disasters including fires up to a maximum of €200 million ($235 million).

This is the second reinsurance deal that Munich Re has undertaken in Iran within the past one year. The first deal was completed in July 2017 with another local insurance provider Saman Insurance. This happened soon after international sanctions were removed in January 2016 following Iran’s decision to cut down on their nuclear program.

Iranian nuclear deal

According to the nuclear deal framework, Iran was meant to cut down and redesign its nuclear facilities in accordance with the Additional Protocol. This agreement was brought about by the permanent members of the UN Security council (The USA, UK, China, India, Russia and France).

However, things took a turn for the worst with President Donald Trump pulling the United States out of the Iran Nuclear deal. This would clearly be a step in the wrong direction, more so for Iran as they were already beginning to reap the fruits of the recently lifted economic sanctions.

Introduction of new sanctions on Iran will inevitably put pressure on the recent agreements made by international reinsurers.

Companies that will be affected directly include Munich Re (German), GIC Re (India) and SCOR (France). SWIFT, the financial messaging system used to arrange international money transfers between banks, will also play a big role since that without their services, traders will have to carry around hard currency as they navigate through Iranian territory; a highly infeasible proposition.

The ripple effects of this will probably be seen soon not only in the insurance industry but also in the banking and trading sectors. Since the news came out, there has been a lot of debate on how this move will affect trade world trade.

For example according to Reuters, Lloyd’s of London has stated that it was “currently reviewing the implications for the Lloyd’s (Insurance) market”. Considering that they have a lot of business in the US, this ‘consideration’ probably means that Lloyd’s will not cover ships travelling to or any company doing business with Iran.

As a matter of fact, this will not be the first time the US has tried to strong-arm the European Union into siding with them in matters of conflict. Officials from the EU have expressed their disappointment in the move and are keen to retain their interests in upholding the diplomatic agreement.

While the US president cited the Iran deal as “selfish and an embarrassment”, many have in turn labelled the Trump administration selfish due to its failure to consider how other economies will be affected as a result of US abandonment.

SWIFT transfers to and from Iran will definitely be affected by Trump’s decision and this will also limit foreign companies from doing business with the Iranian people and their allies.

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