Insurance Market – Ukraine 2015: Results and Prospects
January 30, 2016
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Value of the largest property insured
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Last year Ukraine’s insurance market faced two major trends. The first one was associated with overall decline of economy due to ongoing conflict in the East of our country and sharp depreciation of national currency. The second one, though, came down to the fact that the need for structural reforms became urgent and obvious which, in its turn, gave start to new market developments.
In 2015 the need for structural reforms became urgent and obvious which, in its turn, gave start to new market developments.While the volume of gross written premiums for Q1-Q3 2015 showed miraculous 30 % growth, it was mostly attributed to the inflation component. Key segments which contributed to driving premiums were predominantly “green card” insurance, health insurance and MTPL policies the prices for which are known to be extremely currency exchange rate sensitive.
As to the structure of the market Ukraine cannot boast major changes. As of end of the third quarter the total number of insurers operating in our country was equal to 368 - 39 less compared to the end of 2014. 318 insurance companies specialize in non-life business with remaining 50 entities providing life insurance services. Despite some insurers having dropped out of the market in the course of the year, over 57 % of the insurance premiums still go to top-20 risk insurers and nearly 99 % of them remain to be accumulated by top-20 life insurance companies.
Year 2015 was quite rich in terms of completed M&A deals. Three of them were finally closed in the fall. In early October Canadian Fairfax Eastern Europe gained full control over “QBE Ukraine” which was rated among top-30 insurance companies in the market. Ukraine’s insurance saw another two major deals finalized a month later. First one resulted in American Life Insurance Company exiting market of Ukraine by transferring its stake of 99.9 % in MetLife Insurance Company to its Swiss parent MetLife Global Holding Company II GmbH. It is worth mentioning, though, that the roots of this deal come back to 2010 when two companies first made public their intention to merge. At the same time, in November, Insurance Company “PROVIDNA” rated among top-3 players in Ukrainian market was fully sold by Russian ROSGOSSTRAKH to the Dutch company International Insurance Consortium BV.
Insurers’ nerves were rattled by three heavy fires in 2015 resulting in major claims in the insurance market of Ukraine.
The largest insured claim dealt with the fire which destroyed big industrial enterprise the name of which was kept confidential. However some details were disclosed to the public. It is known that the risk placement and claim settlement was carried out via services of an international broker. The total loss paid by “INGO Ukraine” insurance company amounted to over UAH 140 mln which constituted record paid claim for the past 5 years. What is interesting in this regard is that the bigger part of indemnity was paid under business interruption insurance policy which is actually not that common to the national market. Ukraine’s experience shows that only 10 % of all the property damage insurance policies are extended for business interruption coverage.
The second place in the claims rating goes to “VELTA LLC”. The major fire ruined half of its ore-dressing and processing facilities resulting in over UAH 26 mln worth of indemnity paid by Insurance company “AXA Insurance” with the help of insurance broker BritMark happy to have been serving their client’s interests for over 4 years.
The third fire brought destructive loss to “BRSM-Nafta”’s petroleum depot. It is quite ironic that had it been insured fully, the indemnity under this claim would have broken the record of indemnities paid for the past decade. However, property insurance covered only buildings in the facility’s territory which were only over UAH 1 mln worth.
Military operations in the East of our country couldn’t but influence common practices in the market of Ukraine. Since a great number of policies covering those territories remained effective during tragic 2013-2014, this gave rise to numerous collisions stemming from discrepancies in qualifying the insured events. Such terms and terrorism, war and civil commotions were constantly mentioned in the press and in the course of the international talks, though internal competent authorities rarely rushed to officially qualify them as such. Naturally enough by the end of 2014 and throughout 2015 vast majority of the insurance companies operation in the market of Ukraine made up their mind to refuse coverage of property located in the hotbed territories altogether.
There were some positive developments as well. A number of kick-start legislative initiatives intended to eliminate the market fault lines were presented for discussion within Ukrainian Parliament. Two bills deserve special attention in this regard.
The first one is aimed at introducing electronic policies for MTPL insurance along with direct claim settlement procedures. What is even more important, it stipulates gradual increase of limits of liability to € 1 mln and € 5 mln for physical damage and bodily injuries respectively. They are the sums already common for the European insurance market. The second bill serves the principle purpose to harmonize insurance legislation of Ukraine to that of the EU in accordance with corresponding EU Directives. Its clauses mainly focus on requirement for insurers’ operations, form of organization and reporting to regulatory authorities. It also covers business practices of insurance brokers and reinsurers.
Finally, it should be mentioned which trends for 2016 are the most probable. To our mind, they are as follows:
1) Life, CASCO and mortgage property insurance segments are most likely to keep shrinking due to the currency rate fluctuations lowering paying capacity of both individuals and companies.
2) MTPL insurance policies will be bound to drive higher premiums subject to the implementation of abovementioned bills.
3) Some low profile insurers will definitely exit the market for insolvency reasons. The chances for it will be even higher if the reigns of regulatory authority over financial services market will go to the National Bank of Ukraine fairly credited for its heavy-handed policy referring to shady players.
Ukrainian market has been through a lot for the past couple of years. Nonetheless the coming year is giving some prospect for it to undergo profound structural reforms to pick up the pace of the economic uprising, the expectations of which have been cautiously expressed now and then. So let’s keep our fingers crossed.
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