UKRAINE: An insurance market "deserted" by foreign investors?

Despite the regulatory authority's efforts the Ukrainian insurance market continued to be confronted with a systemic crisis, which was noticed not only in insurance business. One after another, foreign insurance companies' which were active on the Ukrainian insurance market have decided to give up their business.

Among several reasons, local professionals are talking about the country's failure to implement the promised and long awaited reforms in the pension and the health segments. The political volatility and the subsequent crisis have added to the withdrawal decision. Finally, as many corporate customers saw2 in cutting insurance expenses a mean of reducing the costs of doing business, insurance services' demand fell drastically, discouraging investors of persisting in maintaining their insurance business in Ukraine.

Overall the insurance market follows the tendency of the national economy, challenged by sensible monetary policy, currency depreciation, income deterioration, lowering of private consumption etc.

More than ten years ago, foreign insurance groups have brought to the Ukrainian insurance market the idea of high standards of service, technology and huge experience, which local market needed in those times.

"The active expansion on the Urkainian market by Western investors has began ten years ago. Since one decade on the domestic market came well-known international re/insurance players as GENERALI, VIENNA Insurance Group, AIG, AXA, HDI, ALLIANZ. All of them have invested in Ukraine, hoping to increase the volume of business. Unfortunately, a significant part of the investment nit only that did not only paid off, but also brought losses. At the same time, the crisis of 2008-2009 affected the activity of insurers, and, in following 2014 year had led to stagnation, which aggravated situation even more. The Ukrainian market is no longer a priority and promising territory for investors. Compared to the other European countries, investments in Ukraine seem to be no longer right for them. Thus, in 2015 Western insurers and investors turned off their businesses", explained Vyacheslav CHERNYAKHOVSKY, Head of the Insurance Commission, The Ukrainian Society of Financial Analysts.

Foreign exits from the market

In May, 2011 GENERALI Group, one of the largest insurance groups in the world, has left the Ukrainian non-life insurance market through selling GENERALI-Garant (former Garant-Auto) to other companies. And, almost two years later GENERALI sold also its life insurer GENERALI Life Insurance Company (former Garant Life) to its business partner Polish PPF Group.

GENERALI Group has operated on the Ukranian market since 2006 through the acquisition of a 51% stake in Garant-Auto and Garant Life from the UkrAvto Group (full name, Ukrainian Automobile Corporation). At the time of acquisition, non-life insurer Garant Auto ranked as 2ndplayer on non-life market and Garant Life as a third insurer on the Ukrainian life insurance market. It is important to note that Garant Auto's portfolio was dependent on MTPL business, which came mainly from UkrAvto Group. Starting 2008 the situation worsened and the insurer began to lose its position on the local market.

Moreover, in the beginning of 2014, Garant-Auto (note: rebranded after it was sold by GENERALI in 2011) was sold to the owners of City Commerce Bank, as reads the local media. Soon the insurer became totally insolvent. As a result, on February 2015 the National Commission for State Regulation of Financial Services Markets revoked its license and in 2016 was initiated the bankruptcy procedure.

On April 2016, another foreign insurance company ECCO Insurance has left the Ukrainian life insurance market and on 7th of July the National Commission for State Regulation of Financial Services Markets withdrew license and excluded the company from the state register.

ECCO Insurance, belonging to the Austrian ЕССО Versicherungsmakler Ges.m.b.H. and a group of Ukrainian legal entities, was the first insurance company created in 1994 by foreign investors. Till 2013, the life insurer ECCO Insurance entered in TOP-15 Ukraine's largest life insurers in GWP terms, but throughout the last two years has lost its position, due to "the different vision of shareholders", said one of the local experts.

Moreover, official representatives of the supervisory authority stated for local media that "at the begining of February 2016, the clients of the insurance company started to complain to the authority with regard to the ECCO Insurance disappearance. The company was unreacheable also for the market regulator. Thus, the regulator introduced the temporary administrator in order to fulfil the contractual obligations. Moreover, criminal proceedings were instituted".

Recently (in September 2016) Dutch insurer AEGON announced that it will exit the Ukrainian market after less than four years, by selling 100% of AEGON Life Ukraine to local insurance firm TAS Group. TAS Group has merged the business of Aegon Life Ukraine with its existing life insurer under the brand TAS Life.

AEGON entered the Ukrainian market in December 2012 acquiring 100% of FIDEM Life from the local private equity company Horizon Capital, the fifth largest insurance company in the country at that time.

It is also worth mentioning that AIG turns off business also in Kazakhstan, in Azerbaijan and in CEE region operations have been sold to FAIRFAX. LatAm AIG's units also were included in the deal.The main explanation "is due to the reorganizing its global presence, focusing on the lines and areas that offer the opportunities for profitable growth".

At the same time, M&A process generated reputational conflicts in case of HDI Strakhuvannya sale by TALANX: the Ukrainian Commission for State Regulation of the Financial Markets has approved the acquisition of HDI Strakhuvannya by the Bulgarian EUROINS Insurance Group (EIG), a subsidiary of the EUROHOLD financial holding. The deal in Ukraine came after EIG had already acquired HDI Strakhuvannya - the Bulgarian business of the Hannover based insurer TALANX International. HDI Strakhuvannya is already under the control of EIG, after the election of the new Chairman of the Management Board (MB) PhD Alexander VOLKOV, proposed by the Bulgarian buyer. At the same time, former Chairman of the Board and minority shareholder of the company Anna PROSKURINA, contested in a legal court the aproval for this M&A transaction given by the state regulator.

Why foreign companies prefer to change the ownership structure?

During 2016, MetLife Global Holding Company II GmbH (Switzerland) became shareholder of the MetLife Insurance Company (Kiev), with a 99.9988% participation in the share capital of the company (8,234,000 shares). So, American Life Insurance Company (USA), former owner of MetLife Insurance Company (Kiev), has sold 99.99% of shares and withdrew from the shareholders of the insurance company.

Similarly changed the ownership structure of GLOBUS VIG, which early was directly belonging to Vienna Insurance Group. Nowdays, the main shareholders are the other Ukrainian susbidiar limited liability company of VIG "Ukrainian Insurance Group" (99.6%), private joint-stock Company "Insurance company" Ukrainian Insurance Group" (0.3%) and VIG Services Ukraine (0.1%), was written on the website of insurer.

Moreover, other companies were also forced to change ownership structure due to political processes. In this worth reminding the situation of ALLIANZ Ukraine, GUTA-Ukraine and GARANTIA-Life, three companies which saw their activity suspended because of their predominantly Russian ownership. At the same time, the assets of insurers as PROVIDNA (belonged RGS Group or ROSGOSSTRAKH) and INGO Ukraine (belonged to INGOSSTRAKH) were transfered to the other structures.

Did the market meet expectations of shareholders?

Foreign investors entered the Ukainian market in times of growth, when the local companies were pricey. At that time, retail insurers were in great demand, especially if owning a motor insurance and life insurance portfolio.

Moreover, the investment opportunity was based on the insurance low penetration rate in Ukraine and a relative large population. Also, similarly to the young markets of Eastern Europe, the Ukrainian market was young and provided for great hopes of development.

Since 2008, the economical stability was shaken and during the following years the crisis worsened, the economy went into recession, with negative trends amplified by the socio-political situation in the country.

Foreign investors after analizing ongoing cost items of their bugets, higher demands of risk management in the context of Solvency II, low consumer demand, postponded reforms of the market, crisis effects and the instability in the country, reached, one after another, to the decision of leaving the Ukrainian insurance market.

In most cases, and as seen from the above examples, with the leaving of foreign investors local insurance companies were closed, thus leaving numerous clients without protection, or assets were transferred to other companies, which later experienced financial difficulties, followed by inevitable bankruptcies and the loss of a customer portfolio.

But, the subject remains open: does the Ukrainian insurance market, despite the present situation, remain attractive for doing business?

Related articles


New insurance solutions to cover evolving exposures that businesses face

The global commercial insurance market was worth about USD 720 billion in premiums in 2016. The 10 largest markets mirror the world's biggest economies, and account for 73% of global commercial premiums. They include the leading industrialised countries of the G7 group, China, Australia and South Korea. The latest sigma study "Commercial insurance: innovation to expand the scope of insurability" is about the innovative risk transfer solutions available to cover the ever-evolving range of exposures that companies face.


Bridging the protection gap in Eastern Europe

For some families living in the former industrial regions of Eastern European countries, the social welfare payments offered by the Government are the most expected moment, each and every month. They are most helpful as a survival tool but, at the same time, combined with insufficient or even sometimes inexistent state-driven programs for tackling these issues, are considered by experts as a factor against actual change in both mentalities and lives.


What is happening with the Romanian private pensions' Second Pillar?

The future of the mandatory Second Pillar pensions is among the most disputed subjects, in the last period. After the rumors saying they'll be nationalized, the last discussions show that the participants' contribution will be reduced possibly to 1% from the current 5.1%, which will have a significant impact over the future pensions.


2017 is a revolutionary year for the Russian insurance market

2017 is an anniversary year. A hundred years after a series of key events in the history of our country and in one separate segment of the Russian economy such as insurance there will be also revolutionary events, after which the insurance market, apparently, will never be the same.


Travel Insurance compensation in case of a delay or cancellation? Sense or non-sense?

Whether it's buying the best airline ticket or finding the best travel insurance, people want an easy way to understand and compare products online. But, when it comes to submitting a (flight delay compensation) claim, people will find it difficult, time-consuming and complicated. Would a legally eligible claim need to be covered under a travel insurance policy or would a traveller seek to file a complaint to the airline carrier him-/herself? Would there be a strong support for travellers, who are eligibly entitled to compensation, with customer-friendly travel insurance benefits?


Swiss Re: Disasters resulting in economic losses, almost double the level in 2015

Total economic losses and global insured losses from natural catastrophes and man-made disasters in 2016 were the highest since 2012, reversing the downtrend of the previous four years, Swiss Re sigma says. Globally there were 327 disaster events in 2016, of which 191 were natural catastrophes and 136 were man-made. In total, the disasters resulted in economic losses of USD 175 billion, almost double the level in 2015. 




The 9th International Istanbul Insurance Conference started today in Istanbul

In emerging markets like Turkey, there can be a significant difference between the insured and total insurable losses. Parametric insurance is a smart way to close this protection gap. While the traditional products cover an insured loss, parametric products provide financial protection for various expenses from financial liabilities to contingent loss of profit which, in return, decreases the economic loss burden following a CAT event.


61st "Rendez-Vous de Septembre" ends today in Monte Carlo: review

The 61st edition of the "Rendez-Vous de Septembre", the annual traditional meeting of reinsurers ends today in Monte Carlo. The Nat Cat insurance protection gap, as well as the global insurance market readiness to deal with the increasing complexity of the cyber risks were among the most debated topics.


See all