Ukraine’s war-torn economy has been severely affected by Russian aggression during the war. Reports indicate that Ukraine’s GDP has dropped by nearly 30% since the invasion. The National Bank of Ukraine (NBU) and the International Monetary Fund project that the country’s economy may not fully recover until 2030 under a baseline scenario. It is vital now to support economic growth through incentives in the insurance and reinsurance sectors. Legislative changes are needed to restructure war risk insurance, protect Ukrainian businesses from hostile activities, and attract much-needed foreign investments. In recent years, only the Multilateral Investment Guarantee Agency and the Development Finance Corporation have engaged in multiple projects in Ukraine to mitigate the military risks associated with foreign investments. Conversely, the market share of private-sector insurers is relatively small.
Given the high demand from small and medium sized entities, the State should enhance its role in war risk insurance. In June 2024, the Ukrainian Export Credit Agency (ECA) launched two products: one for businesses investing in export infrastructure and another for banks providing loans to export-oriented projects. By September 2024, the ECA had issued its first war risk insurance for an investment loan. However, the ECA can only partially meet market needs with a support limit of USD 48 million tied to its share capital and focus on larger companies.
Insurers operating under such circumstances often emphasise the need for foreign reinsurer participation, which currently is unable to meet the extent of demand. Recently the NBU has been discussing with the business community the possibility of amending the requirements for non-resident reinsurers to allow more non-resident insurers to enter the market. The central bank announced that they will develop a solution soon. This is anticipated to involve a requirement for the minimum financial rating of a non-resident insurer, established by an international rating agency, to be at a level not lower than investment grade. Additionally, it will allow a non-resident insurer to conduct reinsurance activities without meeting the specified financial strength (stability) rating levels, provided it meets Ukrainian Insurance Law requirements and has three years of reinsurance experience. This decision may be made in the coming months.
Lastly, the Ministry of Economy of Ukraine significantly advanced the government’s support by announcing the development of a draft law on the war risk insurance system in cooperation with the NBU. A State Agency for War Risk Insurance will be established to determine a standard policy for assessing and accepting risks for insurers participating in the system. The tasks include developing insurance products, determining approaches to pricing, and maintaining a single centralised database in the war risk insurance system. The system will cover the risks of physical damage caused by the war. In particular, property pledged as collateral and residential construction projects will be subject to compulsory insurance. But discussions are ongoing on the list of mandatory insurance objects, and the Ministry of Economy plans to extend coverage to a broader range of objects.
Material prepared by Olexiy Soshenko, Managing Partner, and Artem Mykhailyk, Junior Associate, for the 6th edition of LIR Ukraine (page 40).