Kyiv is calling on foreign investors to rally around a modern-day Marshall Plan aimed at tackling Ukraine’s estimated US$411bn reconstruction bill. Yet the country may struggle to convince insurers – who were already wary of the market – to back this ambitious proposal. Felix Thompson reports.


Not since the devastation of World War II has Europe faced such extensive physical and economic ruin as seen in modern-day Ukraine.

The conflict during that period left a trail of destroyed cities, factories and railroads, plunging citizens into a struggle marked by soaring inflation and shortages of basic necessities like food and fuel.

In the aftermath, the UK government extended rationing to include bread for the first time, France devalued the franc to a point of practical worthlessness, and West Germany’s monetary system collapsed.

Fearing the rise of communism and the potential impact on the US economy, Washington devised a comprehensive aid plan, including grants and loans, to uplift Europe.

US General George Marshall outlined this proposal in a speech at Harvard University in 1947. By the end of the decade, the participating nations not only rebuilt their shattered infrastructure but also, in some instances, exceeded their pre-war production levels.

In total, Washington allocated US$13.6bn – roughly equivalent to US$150bn in today’s currency – to 16 countries.

Ukraine is now advocating for the creation of a new Marshall Plan, with support from western officials including German Chancellor Olaf Scholz and the president of the European Bank for Reconstruction and Development, Odile Renaud-Basso.

In a video address to the World Economic Forum summit held in Davos in May, Ukraine President Volodymyr Zelenskyy proposed a “historically significant” reconstruction model to cover Ukraine’s estimated US$411bn rebuild. He emphasised the need to “counter hunger, poverty, despair and chaos”, deliberately echoing a phrase used by General Marshall nearly 80 years ago.

But recent history has highlighted the challenges of attracting private capital to Ukraine.

The country has long grappled with corruption – registering an overall score of 33, below the global average of 43 – in Transparency International’s latest Corruption Perceptions Index, published in January.

Moscow’s annexation of Crimea in 2014 and the ensuing conflict in the Donbass region between Ukrainian forces and Russian separatists have amplified the challenges for businesses considering investments in Ukraine, and subsequently for their insurers.

It was not “an amazing market with wonderful fundamentals” prior to the full-scale Russian invasion last year, says James Esdaile, chairman at broker BPL Global.

“There was a lot of concern about transparency and corruption in Ukraine’s private sector pre-war and many insurers had already pulled back after suffering significant losses during the global financial crisis in 2008,” he says. “It was always a tricky country to do business in, and it’s a lot trickier now,” he tells GTR.

Despite these difficulties, Ukraine boasts significant potential. It stands as the largest emerging market in Europe and has transformed itself into an agricultural powerhouse, producing roughly half of the world’s sunflower oil in 2021, and contributing to about a quarter of global wheat exports.


Scale of the task

As Ukraine kickstarts its reconstruction efforts, economists and analysts have been calculating the costs, which far exceed the financing provided under the original Marshall Plan.

A March report by the World Bank, EU, UN and the Ukraine government estimated the country’s rebuild and recovery costs to reach a staggering US$411bn over a 10-year period to 2033.

The figure is 2.6 times Ukraine’s 2022 GDP and takes into account various considerations such as inflation, market conditions, surging construction costs due to high demand, high insurance premiums and the shift towards lower energy technologies.

In the breakdown, transport-related projects will require financing totalling US$92bn, housing roughly US$68bn, and the energy and extractives sector approximately US$47bn.

“The scale of investment required for Ukraine’s reconstruction will be substantial and will necessitate leveraging limited public and donor funding with private investment,” says the Rapid Needs Assessment report.

The provision of funding is crucial not only for Ukraine’s social infrastructure but also for fostering economic benefits.

Ukraine’s GDP contracted by almost 30% in 2022, with poverty levels surging from 5% to 24.1%, while export levels plunged by nearly a third, largely due to a decline in metals and minerals sales.

“It is the SMEs that need financing to maintain jobs, to continue imports and to continue producing. Around 80% of enterprises are back working, and they need financing,” says Olga Sclovscaia, regional head for Europe and Central Asia at the World Bank’s Multilateral Investment Guarantee Agency (Miga).

In June, the UK government and Kyiv co-hosted the Ukraine Recovery Conference, focusing on the role of foreign financiers and insurers in helping the nation “build back better”.

“Rallying businesses to action is at the heart of Ukraine’s recovery and tackling the war insurance gap is fundamental to providing companies with the security they need to unlock their full entrepreneurial and ambitious potential,” said UK Business and Trade Secretary Kemi Badenoch, speaking at the event.


Public insurers get going

As fighting rages to the east, Kyiv has been holding regular meetings with public insurance providers and export credit agencies (ECAs) in a bid to encourage the return of the private market, despite prevailing risks related to war and transparency.

In February, Miga launched its Support for Ukraine’s Reconstruction and Economy Trust Fund (Sure TF), securing contributions of US$25mn from Japan and US$1mn from Belgium for the programme. Other countries have pledged to back the fund, Sclovscaia tells GTR.

Sure TF acts as a first-loss layer, bolstering Miga’s reinsurance capacity when providing guarantees in Ukraine and absorbing potential losses the agency may incur when covering projects.

“We are still in phase one [of the reconstruction] and there’s no private reinsurance, so what could we do? We needed to find other partners and sources of additional risk capital to blend with our own,” says Sclovscaia.

In September, Miga signed a US$9.1mn guarantee to support investments in a warehouse project in Lviv, backed by Sure TF. The guarantee covers war and civil disturbance risks for up to 10 years, facilitating the development of the M10 Industrial Park, an industrial and logistics warehouse complex.

Although Miga’s portfolio in Ukraine prior to Russia’s invasion was limited to three projects, Sclovscaia tells GTR the agency is seeing an uptick in requests from logistics, manufacturing and agribusiness companies.

ECAs from France, Germany, Poland, Sweden, the Netherlands and the UK have also pledged to grow their coverage of investments and projects in aid of Ukraine’s rebuild.

In June, UK Export Finance issued what it called an “unprecedented guarantee” for Kyiv’s reconstruction, backing a £26.3mn loan from Citi to the Ukrainian government to enable it to reopen vital supply routes near the city.

Still, public insurers acknowledge their limitations and stress the necessity of the return of commercial underwriters, given the scale of the country’s reconstruction needs.

“Miga is the largest multilateral insurance provider but still small relative to the overall market,” says Sclovscaia. “We turn around and reinsure ourselves through the private market… Now, obviously that model does not work if there is no private reinsurance market, or at least it challenges our normal way of doing business.”

She points out that Miga’s capabilities are restricted by its own balance sheet and that a functioning private reinsurance market is crucial for the overall effectiveness of its operations.

While an increasing number of countries are donating to the Sure TF, Sclovscaia admits the initiative is a “long-term” project and funding levels are still falling short of the overall US$300mn target.


Too soon to rebuild?

At the same time, credit and political risk insurance (CPRI) underwriters in the private market report that the country’s reconstruction efforts are in their nascent stages, and they have yet to witness a surge in requests from clients seeking to do business in Ukraine.

GTR understands that credit insurer Allianz Trade is still experiencing a downturn in Ukraine-related business.

“We do not see any rebound in trade flows in this country, and do not receive a lot of credit requests regarding the Ukrainian market,” a source says, noting there have been no requests regarding construction projects.

“In principle, we will be ready and obviously very keen to engage with our global clients to support reconstruction efforts via credit insurance or surety bonds, when the time comes,” they add.

Esdaile from BPL Global indicates that Ukraine-related requests, which were sluggish prior to Russia’s invasion, have now completely ceased. However, the broker is anticipating an increase in activity.

In recent months, BPL Global has been in discussion with a few ECAs regarding potential collaboration with private underwriters, rather than positioning themselves as competitors or alternatives, he says.

“Maybe it’s too early, the reconstruction can’t begin until things have calmed down. Our point was why don’t we start exploring what is possible now… to be prepared for when things have calmed down,” he adds.

Esdaile suggests that project finance may offer one area of opportunity for collaboration, with large contracts and substantial investments anticipated for the reconstruction of Ukraine. “ECAs will be going there with a national interest as much as an interest in Ukraine,” he says.

As the market awaits a resurgence in Ukraine business, efforts are underway to mitigate risks as deals gradually emerge.

Janusz Władyczak, CEO of Kuke, tells GTR that the Polish ECA is developing a reinsurance programme for Poland’s transport sector to facilitate the delivery of goods by land, sea, air or rail to importers in Ukraine.

“Since the beginning of the war… only the Ukrainian companies are able to transport the goods, because the private insurance market is not able to insure the transportation means and the cargo [of Polish companies],” he says.

Kuke aims to provide reinsurance for Polish insurance firms, allowing them to offer contractual coverage to their transportation customers, safeguarding them against losses resulting from war-related risks, such as missile strikes. However, the programme, which would be the first of its kind, requires authorisation from the European Commission.


Data-driven strategies

Given the volatility inherent in what remains a wartime economy, the use of data to boost visibility into the perceived and actual risks could also help coax private insurers back to Ukraine.

“If you were to go to market today it would be very difficult to impossible to find war insurance,” Sclovscaia says. “The idea is… to create structures and conditions under which the private market would start to step in, gradually gaining more data, more experience, and hopefully, scaling up over time.”

In October, following months of talks with the Ukraine government, professional services firm Marsh McLennan launched a data platform enabling insurers, investors and governments to analyse war risks in the country.

The platform provides a comprehensive map of war-related incidents in Ukraine, including details on the frequency and type of attacks, locations, assets targeted and damages sustained, thus enabling a more thorough assessment of the risk factors.

Crispin Ellison, a partner at management consultancy firm Oliver Wyman, which is part of the wider Marsh McLennan group, says such data may help convince certain investors and specialist war risk insurers to consider business in Ukraine.

“High-risk investors are looking at low-risk projects [such as in] the tech sector for example, which is thriving and has fewer war risk assets,” Ellison says, while also pointing to growing interest in Ukraine’s solar and wind industries.

Nonetheless, he tells GTR that Kyiv will have to depend on institutions such as the EBRD or World Bank, as well as niche insurers capable of covering war risks until the threat of violence diminishes.

Ellison suggests it will be two or three years, at least, until the market can meaningfully respond to Ukraine’s requirements. “It is a case of slowly and steadily building confidence… so that as the investment climate becomes more attractive or less unattractive, the market is ready to respond,” he notes.

For now, it would seem Ukraine’s hopes for a modern-day Marshall Plan appear some way off, and experts have cast doubt on a full-scale rebuilding of Ukraine’s trade flows and infrastructure while the war drags on. But with innovative initiatives and partnerships, the possibility of summoning sufficient insurance support for the substantial investments required seems to be gradually inching closer to reality.