California Continues To Evaluate Insurers’ Iranian Investments

California Insurance Commissioner Steve Poizner has released a list of 50 companies doing business in the Iranian oil and natural gas, nuclear and defense sectors, and announced that as of March 31, 2010, no investments that an insurer holds in any of those companies will be recognized on its financial statements in California.

“The deteriorating situation in Iran only underscores the need to take action to ensure that insurance company portfolios are not at risk from Iran-related holdings,” Poizner said. “Those investments are subject to increased financial risk and insurers should avoid future investments in these 50 Iran-related companies.”

Two insurance companies – one a major health insurer, the other a major personal lines carrier — have agreed to divest Iran-related investments. These companies have asked the department not to reveal their identities. Negotiations continue with several other companies that have initiated discussions with the department on voluntary divestment, the Department of Insurance said.

“Investments in companies with certain ties to Iran encounter special reputational risks that can have an impact on share value, often in a manner that is asymmetric to the actual business activity in that country,” said Roger Robinson, CEO of RWR Advisory Group, a Washington D.C.-based research and consulting firm that specializes in the assessment and management of global security risk. “Adverse public reaction brought on by corporate activity in Iran can cause an investment in such companies, including those identified by the Department, to take hits to corporate reputation and even share value when the size of the business transactions would otherwise be immaterial.”

Commissioner Poizner set forth his actions in a letter sent to all 1,300 insurance companies that are licensed to do business in California. The letter contains three parts:

First, the letter shares with all insurers the indirect investment list. The 50 companies span 20 countries (all foreign) across four continents. The Department developed the list following research and analysis; consultation with experts RWR Advisory Group and Conflict Securities Advisory Group (two research and consulting firms that specialize in the assessment and management of global security risk – i.e., risk associated with corporate ties to countries presenting security, terrorism or weapons proliferation concerns) and KLD Research and Analytics Inc. (a firm specializing in corporations’ Iran-related business activities); and review of lists developed by the California, Florida and New York public pension funds.

The list includes well-known companies such as Royal Dutch Shell Plc of the United Kingdom and Siemens AG of Germany, as well as lesser known companies such as Ulan-Ude Aviation Plant JSC of Russia, OMV of Austria and Dragon Oil PLC of Ireland. Of the 1,300 insurers licensed to do business in California, about 340 hold investments in companies on the list. Those investments total approximately $6 billion.

Second, the letter announces that effective March 31, 2010, the Department will not give statement credit for investments in companies on the list. The commissioner has determined that companies on the list are subject to financial risk as a result of doing business with the Iranian oil and natural gas, nuclear and defense sectors. Iran is economically and politically unstable. It faces wide-ranging international sanctions in response to its efforts to develop nuclear weapons and its sponsorship of international terrorism, with many countries contemplating adopting additional sanctions, the DOI said.

The elimination of statement credit for investments in companies on the list will mean that insurers will be required to reduce the capital and surplus reported on their financial statements by the amount of investments in these 50 companies. California law requires insurers to carry a minimum level of capital and surplus in order to continue to be licensed to sell insurance in this state.

Third, the commissioner’s letter requests that all insurers licensed to do business in California agree not to make future investments in any companies on the list or in any affiliates owned 50 percent or more by those companies until either (a) Iran is removed from the United States State Department’s list of state sponsors of terrorism or (b) the company and its affiliates cease to do business with Iran’s oil and natural gas, nuclear and defense sectors and is removed from the list.

The Department has asked all insurers to complete and return a form indicating whether they will agree not to invest in the future in companies on the list by March 12.

The Department’s analysis of the approximately $6 billion invested by insurers in companies on the list shows that:

• The approximately $6 billion in Iran-related investments accounts for only 0.15 percent of the total estimated $4 trillion in investments by insurance companies licensed to do business in California.
• Insurers acquired $1.8 billion in Iran-related investments in 2008 and $2.4 billion during the first quarter of 2009.

The Department continues to investigate banks that may be doing business with the Iranian petroleum and natural gas, nuclear and defense sectors, and may supplement its list in the future.

Poizner first announced his Terror Financing Probe in June 2009 to review compliance with a recent California law that prohibits insurers from investing in designated state sponsors of terror. As part of a data call issued by the commissioner, insurance companies were required to identify their direct investments in designated sectors of the Iranian economy and indirect investments in companies doing business in those sectors. In December, the Department announced that insurers reported no direct investments in Iran and therefore are in full compliance with state law prohibiting those investments. But the Department said it uncovered billions of dollars of indirect investments in companies doing business with the Iranian oil and natural gas, nuclear and defense sectors.

To view the list, visit www.insurance.ca.gov.

Source: CDI

Topics California Carriers Energy Oil Gas