Some insurance companies may exit market, consolidation to continue – First Dpty Governor of Ukraine's National Bank
Some insurance companies may leave the market as they work to meet the requirements of the Solvency II Directive, meaning consolidation will continue, said Kateryna Rozhkova, First Deputy Governor of the National Bank of Ukraine (NBU), in an interview with Interfax-Ukraine.
"The new Insurance Law took effect in January 2024. It is significantly more complex and stringent than the previous one and aims to implement the EU Solvency II Directive," she emphasized.
Rozhkova clarified that a three-tier structure for insurers' regulatory capital is now in place, with each level having its own limits. Additionally, regulatory capital requirements have increased, including minimum capital thresholds.
"And that's not all. The Solvency II Directive, which we are implementing as part of European integration, introduces a more sophisticated approach to asset quality. There will no longer be a direct list of acceptable assets. Instead, market valuation and risk assessment of investments will be required. This will necessitate advanced technological solutions and personnel training," she added.
Rozhkova noted that when the NBU became the insurance market regulator, it initially focused on disclosure of insurance companies' ownership structures and the formation of insurance reserves, marking the beginning of market cleanup.
"Next, when we introduced additional asset requirements – removing questionable securities and limiting real estate holdings – some companies either left voluntarily due to their inability to comply or were removed by the regulator. This was the first wave of market cleansing," she explained.
According to Rozhkova, companies leaving the market are those that did not engage in traditional insurance. Instead, they were involved in certain optimization schemes or lacked development, realizing they could not meet the new requirements and that their shareholders would not achieve the expected profits. Companies without the financial capacity to operate in this new environment will be forced to consolidate.
As an example, she cited the Nuclear Insurance Pool, which includes 15 insurance companies. "According to an international nuclear insurance convention, a nuclear facility operator must insure its liability for 150 million SDRs, approximately UAH 8.3 billion. Ukraine has four nuclear facility operators. The companies in the pool cover only 6.3% of this liability, while foreign nuclear pools cover 70%. However, some risks remain uninsured, raising the question of how the state will address this issue. This is an international convention, and we must find the resources to cover the uncovered portion," she said.
"Consolidation is not always a bad thing. Statistics show that despite a two-thirds reduction in the number of insurers, the segment's total assets have not decreased," Rozhkova said.