Updated OFAC Regulatory Guidance Highlights Ongoing Sanctions Compliance Challenges for Reinsurers

On November 13, 2024, the U.S. Department of the Treasury Office of Foreign Assets Control (OFAC), the agency responsible for administering and enforcing economic and trade sanctions based on U.S. foreign policy and national security goals, issued updated FAQs for insurers.¹ This new guidance highlights OFAC’s continued scrutiny of the insurance industry, which is also shown by recent enforcement settlements the agency has reached with insurance companies. Given the prevalence of cross-border reinsurance transactions in which reinsurers subject to U.S. jurisdiction assume risks from overseas, many reinsurers may face significant ongoing sanctions compliance challenges.

Two key OFAC regulatory risks for reinsurers:

• claim or benefit obligations under a reinsurance treaty that could expose a reinsurer to any sanction, prohibition, or restriction under U.S. or other applicable laws and regulations
• failure to conduct adequate diligence on counterparties, administrators, and service providers, namely with respect to Know Your Customer (KYC) policies, procedures, and controls including screening, reporting, recordkeeping, auditing, and training

Reinsurers should be aware of the potential civil penalties for violations of OFAC sanctions, which the agency may impose under a strict liability standard,² as well as potential reputational and operational effects. To protect themselves from these risks, companies have conducted enhanced diligence³ on KYC controls and adopted language in reinsurance treaties that provides that reinsurers are not obligated to pay any claim or provide any benefit that would subject the company to sanctions, prohibitions, or restrictions compliance risk under any U.S. or other applicable law.⁴ While these measures offer some protection, OFAC sanctions compliance continues to be an area of risk that reinsurers should monitor.