Top Japan insurer to cut coverage for ships in IranPosted On: Feb. 24, 2012 12:00 AM CST
TOKYO (Reuters)—Japan's main shipping insurer will be able to provide only a fraction of the coverage to tankers transporting Iranian oil under new European Union sanctions, officials said on Friday.
Starting in July, European insurers and reinsurers will be prohibited from indemnifying ships carrying Iranian crude and oil products anywhere in the world as per sanctions on Tehran.
Although Japan's P&I Club, which provides insurance for shipping companies, does not directly fall under the sanctions regime, it is largely dependent on the European reinsurance market to hedge its risk.
New Western sanctions imposed on Iran to punish it for its suspected nuclear weapons program have hampered traders' ability to do business with Tehran.
"The Club benefits from the reinsurance program of the International Group of P&I Clubs, much of which is placed in London and thus within such jurisdiction," said Royston Deitch, a London-based official with Japan's P&I Club.
"Japan Club rules excludes any recovery or indemnity where the liabilities, costs or expenses are not recoverable from the Club's reinsurers due to sanctions."
The insurer only will be able to provide coverage worth a maximum $8 million per tanker, down from the current $1 billion coverage, said an industry official, who declined to be identified.
"Japan Club can pay up to $8 million, but if it covers more than that, it could go bankrupt with only an accident," he said.
The insurer is expected to publish a circular early next week outlining its policy on Iran, and which is likely to include cuts to coverage.
Any reductions would force club members who want to continue to import Iranian oil to obtain additional coverage from outside the Japan P&I club, possibly in China, Russia or the Middle East.
It also translates into fewer options for non-Japanese shipping companies, such as state-run Shipping Corp. of India, that need to replace their European insurance coverage. China, India and Japan are Iran's three biggest crude oil customers.
Japan P&I Club is the only Asian-based member of the Group of International P&I Clubs, an association of customer-owned ship insurers that covers 95% of the world's tankers against pollution and personal injury claims.
Japan, Iran's third-biggest crude oil customer, is looking to reduce its dependence on the OPEC member due to pressure from the E.U. and the United States.
Japan may cut Iranian crude oil imports by a more-than-expected 20 percent as it seeks a waiver from U.S. sanctions, a newspaper reported on Thursday, a move which would spare its banks from a major blow but also boost its rising fuel import bill.