Foreigners waive risks of Ukrainian insurers

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Insurance companies cannot reinsure the risks of their customers abroad, according to Capital’s sources in the insurance market. «The problem exists, although it mostly applies to optional (individual — Capital) rather than obligatory (complex — Capital) reinsurance agreements,» confirmed Chairman of the Board of Directors of TAS Insurance Group Pavlo Tsaruk.

There is no special statistics on the reinsurance agreements, but figures of the total volumes show substantial arrears. During 9 months of 2014 the amount of insurance premiums transferred abroad decreased by almost a quarter compared to 2013 — down to UAH 1.1 bn, and during the year, according to member of the State Commission for Regulation of Financial Services Markets of Ukraine Oleksandr Zalyotov, the volumes could drop by 50%. No official annual statistics for the market has been published yet.

Fear of war

«Foreigners do not explain the reasons for which they refuse to reinsure Ukrainian risks or come up with formal reasons for refusals. But everyone knows that the main reasons are the problems in the economy and the war,» said General Director of the Insurance Business Association Lyudmila Beloshytska.

CEO of the Aska Insurance Company Andriy Shukatko says western reinsurers are mostly afraid of insurance contracts signed with customers in Donetsk and Luhansk oblasts and Crimea. In addition, Ukrainian companies are reluctant to work with reinsurers from Russia. At the end of 2014, according to Zalyotov, the volumes of reinsurance in Russia have halved. «Ukrainian companies do not believe that Russian reinsurers fulfill their part of the obligations upon occurrence of the insured events,» explains the situation Chairman of the Supervisory Board of the Salamandra-Ukraine Yuriy Yavtushenko. Transferring the currency under a reinsurance contract to Russia, Ukrainian insurers are also at risk of invoking the wrath of the regulator, although officially the State Commission for Regulation of Financial Services Markets of Ukraine did not ban such business with the neighboring country.

Market problems

Obligatory contracts with foreigners are concluded mostly by large insurers, and optional agreements are usually made by medium and small companies. Therefore, the latter will be affected by the problems with reinsurance abroad the most. «You have to understand that this is not a problem for individual players, but a problem for the whole market. In case it is not solved, it could result in a domino effect,» says Beloshytska. The thing is that if an insurance company insures assets of a company with an insurance liability of UAH 1 bn, in theory, the insurance company cannot leave such a risk, even if the insurance premium reaches UAH 1 mn, — there are no companies in Ukraine able to pay such insurance coverage independently.

However, if the access to the European markets is closed for such company, it will have to reinsure the risk in other large Ukrainian companies. «In the current situation there is a high risk of mass bankruptcy of our insurers. Therefore, it is very risky to reinsure major risks in our country,» said Yavtushenko. He did not rule out that those insurers preparing to leave the market are eager to assume greater responsibility for property risks, especially in the area of military operations. «They will reinsure nothing. They will simply steal the money and go bankrupt,» says Yavtushenko.

Zalyotov says the problems with reinsurance have been accumulating over the years and require comprehensive solutions. The new leadership of the regulator is aware of that and is planning to work on the way out of the situation in the near future.