For insurers, 2023 is not only the second year of a difficult war. It is also a year of preparation for big changes. Changes related to the implementation of many ideas of the White Paper “The Future of Insurance Market Regulation”, which should ensure the solvency, stability and competitiveness of the insurance market in Ukraine with proper protection of the rights of insurance consumers. These ideas are reflected in the new Law of Ukraine “On Insurance”, which comes into force on 1 January 2024. The market is also expecting important and much-needed changes to the legislation on motor third party liability. Both laws will be aimed at implementing the leading EU directives.
However, the transformation of the insurance market has already begun. One of the areas of this transformation is the transition to fully transparent ownership structures of insurers and the financial solvency of their owners. To this end, the NBU has been monitoring the transparency of insurers’ ownership structures since 2021. This monitoring and supervisory actions concerning insurers will continue, in line with the provisions of the Memorandum of Economic and Financial Policies with the International Monetary Fund dated 24 March 2023.
The second area of transformation of the insurance market this year is the tightening of requirements for insurers’ assets by the Regulator. From the beginning of the second half of 2023, the NBU will no longer recognise land as an eligible asset when assessing insurers’ solvency. This will make insurers’ investment policies more conservative and, as a result, safer for consumers.
The third area of change this year is the transition of insurers to a new accounting standard for insurance contracts – IFRS 17. This standard should ensure that insurers better reflect their performance in their financial statements.
Insurers’ performance in the first quarter of 2023
Despite all the challenges caused by the war, Ukraine’s insurance market continued to recover strongly in the first quarter of 2023. Insurance premiums for risk insurance totalled UAH 8.9 billion, up 7.2% compared to the first quarter of 2022. However, this figure is still lower than in the pre-war Q1 2021 (-16.1%). The NAIU members are resuming their activities at a faster pace than the market as a whole, with their insurance premiums in the first quarter of 2023 already exceeding the same figures for the pre-war year by 3.1%. At the same time, it should be noted that the recovery of all insurers is uneven and depends on both the size of the companies and the structure of their portfolios.
According to the NAIU, the main drivers of insurance premium growth in the first quarter of 2023 compared to the same period in 2022 were the following types of insurance: insurance of road vehicles (+UAH 365 million), MTPL (+UAH 320 million) and Green Card (+UAH 301 million). Together with v oluntary health insurance (VHI), these types of insurance account for 79.4% of the market.
The primary reason for the growth in insurance of road vehicles and MTPL insurance premiums is inflation, which has affected the cost of vehicles, car parts and repairs in general. The second reason is the recovery in the number of insured vehicles for these types of insurance.
According to the United Nations High Commissioner for Refugees (UNHCR), more than 5 million refugees from Ukraine have been registered for temporary protection in Europe due to the war. Those travelling by car were required to purchase a Green Card insurance certificate, which is required to enter Europe. The volume of international freight and passenger traffic also increased. All this led to a sharp increase in demand for the Green Card.
Insurance payments for risky types of insurance in the first quarter of 2023 amounted to UAH 3.5 billion, which is 16.6% more than in the first quarter of 2022. UAH 2.7 billion was paid by the NAIU members. The largest share of insurance payments is accounted for by insurance of road vehicles. Insurance reserves increased to UAH 23.6 billion, which is almost 10% higher than last year. The main factor behind the growth of insurance reserves is a sharp increase in sales of Green Card (more than 2 times) since the beginning of the war, whose loss ratio has significantly exceeded the pre-war figures. The growth of insurance reserves means that insurance payments will increase in the following periods, as insurance reserves reflect the amount of future liabilities of insurers. Non-life insurers’ assets amounted to UAH 48.2 billion at the end of the first quarter of 2023, which is more than at the end of pre-war 2021. At the same time, this figure slightly decreased over the last quarter, due to the withdrawal of a number of insurers from the market. In general, insurers’ assets have a steady upward trend, which indicates an increase in the capitalisation of the insurance market.
The life insurance market, unlike the non-life insurance market, is recovering at a slower pace. The reason for this is structural changes in the labour market: under martial law, it is becoming more difficult for citizens to save for their future. People’s spending priorities are also changing. Life insurance premiums in the first quarter of 2023 decreased by 13.3% compared to the same period in 2022 and amounted to UAH 1.3 billion. In contrast to premiums, insurance claims increased to UAH 286 million. This is the highest quarterly insurance payout figure for the last 2 years, including pre-war 2021. As of the end of the first quarter of 2023, life insurers’ insurance reserves increased to UAH 17.6 billion and assets to UAH 21.3 billion. The share of NAIU members in the life insurance market by all indicators is more than 97%.
In difficult wartime, insurers continue to support Ukraine’s economy by paying taxes to the budget in a timely manner. Despite the fact that in 2023, income tax revenues are expected to decrease due to lower corporate profits, as stated in the estimates of the Memorandum on Economic and Financial Policy, insurers have already paid UAH 383 million in income tax to the budget in the first quarter of 2023. This is the contribution of the insurance market to the financial support of our Victory along with the provision of insurance services that citizens, businesses and the state need.
More detailed information on the performance of the insurance market in the first quarter of 2023 is available on the NAIU website in the section ” Insurance activity indicators“.
