Hopes Rise for War Risk Insurance: Takeaways from the Ukraine Recovery Conference 2024
At last year’s Ukraine Recovery Conference (URC) in London, war risk insurance emerged as a promising instrument to attract and retain foreign investors in the war-torn country. Selected projects under the aegis of the Multilateral Investment Guarantee Agency or Unity insurance facility gained traction, but overall progress on war risk insurance for business has been limited.
The main obstacle has been a lack of capacity to assume more risk, attributed to the limited involvement of international insurance and, in particular, the absence of reinsurance players after they withdrew from Ukraine, Belarus and Russia in early 2023. This impedes all local and international insurers from expanding coverage, as Jean Cloutier, Fairfax Financial Holdings Ltd. vice president for international operations, noted during URC 2024.
Another significant barrier is a tendency to view the war and political risks in Ukraine as homogeneous. Regional differences, however, exist. The Ukrainian War Risk Data Platform indicates that the rate of destruction in western Ukraine is, unsurprisingly, much lower than that in frontline regions. In fact, 76% of all communities had no war-related incidents in the first nine months of 2023. Such data could help reduce insurance premiums for investments.
URC 2024 provided two major announcements that could finally create conditions for developing a Ukrainian insurance and reinsurance market for wartime and beyond. Scott Nathan, CEO of the US International Development Finance Corporation (DFC), revealed a new $357 million financing package that included political risk insurance. And Aon, a consultancy that offers risk-mitigation products, brokered a $50 million reinsurance facility for ARX, a Fairfax Financial Holdings Ltd. subsidiary in Ukraine, for businesses operating in the country.
Hopes are high that these offerings will spur other insurers and reinsurers to consider expanding into Ukraine, and boost competition and lower premiums, as the Unity facility claims it has done. But Unity has also shown that government guarantees play a crucial role in enabling competitive risk premiums. The provision of a first-loss compensation fund for shipowners through letters of credit from state-owned Ukrainian banks helped significantly reduce risk premiums.
These developments are promising, but more is needed. Munich Re and Hannover Re, two of the world’s biggest reinsurers that held more than 20% market share in 2022, were absent from the conference despite being based in the URC host country. Kyiv and its foreign partners need to collaborate to incentivize and support major international insurance and reinsurance players to enter and stay in the Ukrainian market. Political will and government guarantees will be necessary, as the Unity platform has shown. The ultimate goal is to make war risk insurance accessible to businesses worldwide interested in investing in Ukraine but holding back due to its limited availability.
Read more analysis of the 2024 Ukraine Recovery Conference by Thomas Kleine-Brockhoff