EU's Iran oil ban weighs on ship insurance market

Jan 31 (Reuters) - European Union sanctions on Iran's oil trade look set to weigh on London's marine insurance market by forcing tanker companies doing business with Iran to insure themselves outside Europe, industry executives said.

The sanctions regime, due to take effect in July, bans imports of Iranian oil into the EU and prohibits European insurers from indemnifying ships carrying Iranian oil anywhere in the world.

That will clear the way for rivals in Iran, Asia or Russia to pick up the slack, said Andrew Bardot, executive officer of the International Group of P&I Clubs, an association of customer-owned ship insurers which covers 95 percent of the world's tankers against pollution and personal injury claims.

"It doesn't stop shipowners who wish to engage in that trade from getting insurance elsewhere," Bardot said. "At the commercial level, there will be a loss of premium from those fleets, and a lot of migration to other markets."

The Iranian sanctions, agreed by EU governments last week, are aimed at putting pressure on Tehran's disputed nuclear programme by shutting off the country's main source of foreign income.

"Any situation like this could result in business moving to other areas," said Neil Roberts, a senior executive at the Lloyd's Market Association, which represents underwriters operating in the Lloyd's of London insurance market.

London is the leading global centre for marine insurance, accounting for 17 percent of the $8.5 billion market for hull and machinery cover, which protects vessels against physical damage, according to the International Union of Marine Insurers (IUMI).

It also controls an 8 percent share of the $13 billion market for cargo insurance, in third place behind Germany with 9 percent and Japan with 14.6 percent.

Since the United States is planning similar sanctions, insurance business displaced from London and other European markets is likely to end up on the books of insurers in Asia, Latin America or Russia, executives said.

CHINA RISING

The upheaval comes as the marine insurance industry is preparing to absorb what could be its biggest ever claims bill -- a loss of up to $1 billion from the shipwreck of the Costa Concordia cruise liner earlier this month.

The International Group of P&I Clubs has already suspended business that could breach the ban, Bardot said.

The sanctions will also force European commercial insurers providing hull and machinery cover to stop insuring tankers carrying Iranian oil, IUMI said.

"IUMI recognises the fact that for most insurers it will continue to be impossible to insure tankers carrying Iranian oil," the body said in a statement.

One potential beneficiary is China, an emerging force in marine insurance which accounts for 10 percent of hull and machinery cover and 9 percent of the cargo market, according to IUMI figures.

"China and India may quite easily take up the slack as they do not like having rules imposed upon them by western powers," a senior shipping industry source said.

Iran's biggest tanker operator NITC last year secured ship insurance cover at home and in Asia after European providers pulled out due to earlier sanctions.

NITC, which was privatised in 2000 and which is owned by three Iranian pension funds, has found itself in the firing line with the U.S. senate discussing provisions that could blacklist the group.

Shipowners' ability to buy insurance outside established European markets may be constrained by their banks, whose loans are often secured against their customers' fleets, and who have the power to veto insurers they deem financially weak or opaque.

"You can't suddenly say we're going to use insurer XYZ in Timbuktu, and he's C-rated, because the banks may say you can't do that," said a senior London-based marine underwriter, who said the impact of the ban on his business would be "minor."

"Insurers obviously won't get a peachy piece of the trade in Iran, but I'm not sure we're getting much anyway."

The number of Asian insurers lining up to fill the gap left by their European counterparts could also be limited, as only those with no dependence on European reinsurance would be able to compete for the business.

Much of Iran's imported needs including food and consumer goods are transported by sea via container ships. Oil tankers are used to ferry the country's crude oil exports.

"I sense that many international shipping companies are challenged beyond what they find can be justified when looking at the potential earnings of trading with Iran," Jakob Larsen, maritime security officer with BIMCO, the world's largest private shipowners' association.

"Having said that, I think there are still some who are able to carry on their business in a way that does not breach sanctions and yet ensures a decent return on investment."