Reinsurance Focus

H.R. 2194, the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 (“CISADA”) (bill text and bill summary) was passed by Congress on June 24, 2010 and signed into law by President Obama on July 1, 2010. An earlier iteration of the bill, the Iran Refined Petroleum Sanctions Act of 2009, was reported in our posting of December 22, 2009.

CISADA strengthens existing trade sanctions, authorizes new ones and supports the US’s multilateral diplomatic strategy to address Iran’s nuclear program. Among other things, CISADA amends and expands the Iran Sanctions Act of 1996 (“ISA”) to impose enhanced sanctions against Iran, which to an extent covers insurers and reinsurers, unless otherwise excepted by the new legislation.

CISADA, as it expressly applies to insurance and reinsurance, requires the President to impose three or more mandatory sanctions against a person that knowingly sells, leases, or provides to Iran goods, services, technology, information or support with a fair market value exceeding $1 million, or $5 million or more over a 12-month period, that could directly and significantly contribute to the enhancement of Iran’s ability to import refined petroleum products. CISADA defines the phrase “goods, services technology, information or support” to include underwriting or entering into a contract to provide insurance or reinsurance for the sale, lease, or provision of such goods, services technology, information, or support.

CISADA, however, includes an exception for underwriters and insurance providers exercising due diligence. In order to avoid sanction, the President must determine that the underwriter or insurance provider has exercised due diligence in establishing and enforcing official policies, procedures, and controls to ensure that it does not underwrite or enter into a contract to provide insurance or reinsurance for the sale, lease or provision of goods, services, technology, information or support that is prohibited by CISADA.

On a related note, while the California Insurance Commissioner continues to call for divestment of insurance company investments in multinational companies that do business in Iran, insurers licensed to do business in California are questioning the authority of the Commissioner. CISADA expressly authorizes state and local governments to provide for divestment of its assets from, or prohibit the investment of their assets in, companies with investment activities in Iran’s energy sector. Such authorization, however, does not appear to cover insurance-related divestment measures of the type being taken by the California Insurance Commissioner; although, CISADA does not contain any express language that would appear to preempt measures like the one being taken by California.

This post written by Karen Benson.