It’s been reported that Iran is looking to the insurance-linked securities (ILS) market and intends to establish regulations that would allow local companies to leverage ILS as a replacement for reinsurance due to the sanctions the country faces.
Iranian insurers are now struggling to access reinsurance capacity and international insurance capacity is also limited for companies in the country, due to the imposition of sanctions by the United States and its allies.
The report from Reuters suggests that Iran’s Securities and Exchange Organisation is looking at a range of financial products as a way to open access to more sources of funding, given the economic pressure from the imposed sanctions.
Among these is reported to be insurance-linked securities (ILS), which Reuters source a senior Islamic finance expert in the Organisation says could be introduced as a way to enable local Iranian insurers to transfer risk to the capital markets.
Access to capital markets could act as a replacement for reinsurance, which has become harder to access under the sanctions regime.
This would likely require Iran to adopt its own regulations to support ILS business, given Iranian insurers may not be able to access other ILS domiciles due to the international restrictions it faces.
It’s an interesting thought, but many of the ILS market’s investors would likely not be able to support and invest in such efforts, as they too may be restricted under the sanctions regime.
However, with its own ILS regulatory system Iran could perhaps issue ILS which could be allocated to by capital markets investors whose investment decisions are not restricted by the sanctions.
Any ILS activity in Iran may have to comply with Islamic finance rules and Iran’s Securities and Exchange Organisation is said to be working on a new structure for an Islamic bond.
Interestingly, as far back as 2013 the island domicile of Guernsey proved this was possible, with the first insurance-linked securitization (ILS) of takaful (Sharia’a-compliant) in-force life insurance policies completed that year.
Given the long-road that other regulatory environments have faced in getting ILS business up and running in their country, Iran’s ambitions in this market will likely take some time to be realised.