The European Bank for Reconstruction and Development (EBRD) has established a €110mn guarantee facility aimed at boosting war risk insurance for cargo and transport companies in Ukraine.
As part of the facility, launched alongside broker Aon today, the EBRD will seek to encourage international reinsurers to return to the Ukrainian market by covering their losses on specific war-related risks.
The scheme will initially cover inland cargo, motor vehicle damage and railway rolling stock in the market, backstopping reinsurance policies provided to local Ukrainian underwriters.
But the facility has the “flexibility to expand” to a broader range of assets as market demand evolves, the EBRD says.
The move comes amid heightened concern over a lack of war risk insurance in the Ukrainian market, where the threat of damage from Russian missiles and drones remains a pressing concern.
Last month, Ukraine’s President Volodymyr Zelensky said Russia had launched a “massive” air attack on its energy infrastructure, striking targets in Kyiv as well as the Donetsk, Lviv and Odesa regions. In the country’s capital, citizens have become accustomed to rolling blackouts of up to eight hours.
“Russia’s full-scale invasion… has led to a significant reduction in reinsurance capacity, as international reinsurers have largely withdrawn from the market,” the EBRD and Aon say in a statement.
“This has left local insurers considerably limited in their ability to offer commercial war risk insurance products.”
The hope is the facility will help “stimulate business activity and economic growth, paving the way for Ukraine’s recovery and reconstruction”, the EBRD says.
Ukraine’s economy has been battered by the invasion and is only expected to reach pre-war levels by 2030 at the earliest, the EU says. Vast sums of private and public capital will also be required in the country as Kyiv works to kickstart a rebuild the World Bank estimates will cost over US$480bn.
The guarantee has been supported with donor contributions from France, the UK, Norway and the TaiwanBusiness-EBRD Technical Cooperation Fund.
The EBRD says it is also in “advanced negotiations” with other donors including the European Union and Switzerland.
The initial pot of €110mn could ultimately cover transactions worth nearly ten times this value as insurance policies for goods and transport assets are typically short-term in nature, the bank says.
“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,” it notes.
“Based on this approach, it is estimated that the bank’s guarantee could facilitate insurance cover for up to €1 billion worth of goods and vehicles in transit each year, with a significant economic impact.”
MS Amlin is the first international reinsurer to sign up to the scheme, and is joined by Ukrainian underwriters INGO, Colonnade and UNIQA. An open platform will allow transactions between the different market participants.
Yuliia Svyrydenko, first Deputy Prime Minister and Minister of Economy of Ukraine, says the market has been “eagerly anticipating” the launch of the mechanism.
“I am confident that this mechanism will provide much-needed support for small and medium-sized businesses, which have been severely affected by the war,” Svyrydenko said in a statement today.
Export credit agencies (ECAs) from countries such as Denmark, Germany and the UK have been a vital source of war risk insurance for longer-term reconstruction projects in Ukraine.
Meanwhile, Kyiv has also sought to boost war risk insurance for exporters by widening the remit of its own ECA.
In January 2024, the Ukrainian Parliament signed a law authorising ECA Ukraine to insure investments and investment loans against war and political risks, and in recent months, has started receiving applications. However, the agency recently told GTR it is “constrained by the size” of its statutory capital.
