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EghtesadOnline: Capital Intelligence, the international credit rating agency, has released its key report on the Iranian insurance market, reviewing the latest development in the wake of the US unilateral move to exit the Iran nuclear agreement last month.

Although CI considers it the latest blow to the Joint Comprehensive Plan of Action–as the 2015 agreement between Iran and world powers is formally known–as an underlying negative  point for Iran's economy overall, it does not see a wider fallout for the insurance sector. 

Explaining the key points of the report, Wolfgang Rief, the senior credit analyst who co-authored the report, said in an exclusive interview with Financial Tribune that the upcoming US sanctions for Iran's insurance industry will have little impact both because of the limited exposure of insurers to foreign business and the experience of previous sanctions that have made the firms more adept at managing them.

"In the insurance world, the rating can be somewhat higher than the sovereign rating because the insurance sector is very important for the economy's soundness but to a lesser extent, it is also intrinsic to the economy like banks," Financial Tribune quoted Rief as saying.

“You know one of the largest risks for banks is the contagion risk, meaning that when one bank is ill, the others will become ill, too–but in the insurance sector there is no contagion and the business model of insurers is more stable than that of the banks.” 

According to the analyst, the inflow of business for insurers in Iran which is 50% mandatory–the motor vehicle business for example–indicates that the business model is more stable and safer “therefore we think that the ratings of the insurance sector can be above the sovereign”.

Rief noted that CI has downgraded Iran’s sovereign rating until the end of April from BB- with a stable outlook to BB- with a negative outlook, but for the insurance sector no lowering of rating has been considered. 

As for the international ties of domestic insurance firms, Rief said the international business of Iranian primary insurers is very small. 

“I would say that 90% of the business are national business. Iran’s insurance sector acted with remarkable resilience during the previous sanctions,” he added.   

Echoing similar views, Sara Haghighatvand, an insurance expert and the co-author of CI’s analysis, said with the prospective reimposition of sanctions, opportunities are also up for grab for domestic firms. 

“For instance, the kind of coverage that P&I Club provides can even act as an opportunity because the capacity that went to international insurers can in fact go to local insurers,” she told Financial Tribune. 

“In the reinsurance sector, in which Bimeh Markazi [the regulator] is dominant, it had a cautious approach which is why Iran did not have many contracts with foreign reinsurers [after the nuclear deal]. So I thing nothing will change dramatically.”

US President Donald Trump pulled out of the international nuclear deal with Iran on May 8 and said he would reimpose sanctions within 180 days, prompting several European companies to announce they would end business with Tehran before the Nov. 4 deadline.

In May, German insurer Allianz said it was preparing to wind down Iran-related business due to possible US sanctions.  

 Change of Strategy 

Asked about the Iranian insurers’ strategy in the new era, Rief said these firms already have the experience from the previous sanctions.

“Business model will continue with private clients as it is and since international investors didn’t come to the insurance industry, there is no change there because it didn’t happen yet, which is a pity because there was some gradual improvement and it was hoped that it would develop further,” he said. 

“That is why we have titled our report ‘muted hope’ because the situation was difficult and there was gradual improvement and now there is another setback.” 

In its key report, which has been completed in May and is considered the most up-to-date review of Iran’s insurance sector, CI says the Iranian insurance sector remains highly fragmented, characterized by the dominant market position of Iran Insurance Company, the state-owned insurance company with a market share of 38% in fiscal yearend 2017 and the existence of numerous small insurers. 

Given the deteriorating economic outlook, Capital Intelligence Ratings sees addressing the structural problems of Iran’s insurance market as vital for further buttressing the resilience of domestic insurers. 

In fact, CI Ratings highlights the need to consolidate Iran’s insurance market and move toward a more risk-based supervisory system. 


US sanctions Iran insurance market Capital Intelligence Iran insurers Iran nuclear agreement Wolfgang Rief