Norwegian marine insurer Gard has informed Club Members that the fall-back cover, placed to deal with the potential reinsurance recovery shortfall risk under Gard’s Fixed Premium P&I Excess Loss reinsurance programme due to US reinsurers participation, has not been renewed for the 2019 policy year.
It noted by way of background that the Rules of all of IG clubs:
· contain provisions, under which the Member has no P&I cover in respect of activities or liabilities which breach applicable sanctions, or otherwise expose the club to sanctions or to the risk of sanctions, and
· prohibit or limit (reduce) a Member’s right of recovery from its club if there is a shortfall in the club’s reinsurance, because of the application of sanctions (which includes any shortfall under the Excess Loss programs or any other reinsurance arrangement).
For the 2018 policy year, Gard’s Fixed Premium P&I Excess Loss reinsurance programme consisted of two contracts providing limits:
Layer 1 $230m excess $20m.
Layer 2 $500m excess $250m.
In the event of losses both contracts had unlimited reinstatement of cover.
The US-domiciled reinsurers had, during this policy year, shares amounting to 37.5% under Layer 1 and, noted Gard for the reasons outlined, there was a very high probability that a claim with Iran nexus would prohibit or limit a Member’s right of recovery from the club because of the US primary sanctions.
In an effort to find a solution to facilitate a resumption of lawful trading with Iran, Gard placed a fallback reinsurance cover for its fixed premium P&I business for the 2018 policy year. The cover was designed to respond to reinsurance recovery shortfalls resulting from the inability of US-domiciled reinsurers on the Fixed Premium Excess Loss reinsurance programme to make payments due application of US primary sanctions.
Since there were no longer US reinsurers participating in the fixed-premium P&I reinsurance programme, the need for the arrangement had ceased and accordingly the fall-back cover had not been renewed for the 2019 policy year.
However, Gard noted that, while the potential risk for reinsurance shortfall had been reduced vis-a-vis Iran trade under the fixed premium P&I programme, it might still be an issue. The risks involved in respect of Iran trade remained high, in particular after the re-imposition of US secondary Iran sanctions.