Aon and EBRD launch facility to ‘revitalise’ war risk market in Ukraine

Aon and the European Bank for Reconstruction and Development (EBRD) have launched an innovative war risk insurance facility to “revitalise” the war risk insurance market in Ukraine. Through the new €110m Ukraine Recovery and Reconstruction Guarantee Facility, the EBRD will support global reinsurance companies by guaranteeing to cover losses on specific war-related risks underwritten by local Ukrainian insurers. It is thought that up to €1bn worth of goods and vehicles, predominantly among SMEs, could ultimately be covered by the initiative. The structure seeks to leverage existing market infrastructure and tested risk transfer mechanisms from the insurance industry to provide the protection that private sector investors require. Russia’s full-scale invasion of Ukraine in February 2022 has led to a “significant reduction” of reinsurance capacity in the local market as international reinsurers have largely withdrawn. This has severally limited local insurers’ ability to offer commercial war risk insurance products. Aon and the EBRD said that by making war risk insurance more accessible, the initiative will stimulate business activity and economic growth, paving the way for Ukraine’s recovery and reconstruction. Global speciality reinsurer MS Amlin is the first international reinsurance partner to join the EBRD facility. The structure allows MS Amlin to transfer reinsurance exposure off their balance sheet, which enables the UK-based reinsurer to re-engage with Ukrainian insurers and provide the much-needed war risk cover. The Ukrainian insurance companies INGO, Colonnade and UNIQA are among the first local market participants that will be actively driving the expansion of the product. “Given their wide distribution network, it is expected that the facility will enable the provision of war risk coverage to businesses and small and medium-sized enterprises (SMEs) at scale,” said Aon and the EBRD. The scheme will initially cover inland cargo, motor vehicle damage and railway rolling stock. It has the flexibility to expand to a broader range of assets based on evolving market demand. Most insurance policies are generally short term, so the facility will be able to recycle capital and provide coverage for a multiple of the guarantee amount, depending on the number of policies sold and the frequency of claims. Based on this approach, the EBRD’s guarantee may insure up to €1bn worth of goods and vehicles in transit each year, it said. The facility is backed by France, the UK, Norway and TaiwanBusiness–EBRD Technical Cooperation Fund. Additional donor support has been pledged by the EU and Switzerland. Further donor contributions will enable the growth of the EBRD guarantee over time. The EBRD and Aon said they have coordinated closely with the Ukrainian Ministry of the Economy and the National Bank of Ukraine to ensure the provision of war risk insurance policies to Ukrainian companies and further strengthen the Ukrainian economy. The facility is designed to complement facilities offered by other international organisations and the Ukrainian government. Odile Renaud-Basso, president of the EBRD, said: “This is a significant milestone for Ukraine and a testament to the EBRD’s unwavering commitment to supporting the country’s real economy. The EBRD’s guarantee will enable private sector reinsurers to re-engage on Ukrainian war risk and build a resilient insurance market in Ukraine. This is crucial to giving businesses confidence that their assets are protected, which in turn will unlock and accelerate investment in Ukraine.” Greg Case, CEO of Aon, added: “This innovative new facility, in collaboration with the European Bank for Reconstruction and Development, further enhances the stability of the insurance market in Ukraine and strengthens the foundation for economic resiliency and growth.” Yulia Svyrydenko, first deputy prime minister, minister of economy of Ukraine, said he is confident that the facility will provide much-needed support for small and medium-sized businesses, which have been severely affected by the war. “It will help attract investments into the Ukrainian economy and serve as a signal to other market players that new insurance mechanisms can and should be implemented, as there is clear demand from the private sector,” he added. Last November, Marsh launched the Unity insurance facility to provide affordable war risk insurance for grain shipments and other critical food supplies. It offers hull and separate protection and indemnity (P&I) war risk insurance at significantly reduced premiums compared to standard market pricing. Backed by Lloyds and, ultimately, the Ukrainian government, Unity has since expanded and now offers lower war risk premiums to all ships trading in and out of Ukraine’s ports. It now covers all ships carrying all non-military cargo – such as iron ore, steel, electrical equipment and animal fodder. Unity provides up to $50m in cover, led by Ascot.

Aon and EBRD launch facility to ‘revitalise’ war risk market in Ukraine

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Want to read this article?

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