How Ukraine is Rewriting the Rules of Insurance Risk

In 2024, while the world’s attention remained fixed on the front lines, Ukraine’s financial regulators launched a fundamental “software upgrade” to the nation’s economy. The transition to “Best Estimate” is a declaration of financial transparency aimed at securing future reconstruction capital.

“Best Estimate” is often treated as a sterile actuarial term. But in Ukraine, it has become a cornerstone of national economic survival.

As the country aligns its financial systems with European Union standards mid-conflict, a quiet revolution has taken place within the insurance sector – moving from a rigid, percentage-based “guesswork” model to a sophisticated, risk-based regime.

At the center of this transformation is Zhanna Dryha, Doctor of Economics, Professor of the Department of National Security, Public Management and Administration, expert in financial regulation and insurance supervision, specializing in accounting and internal audit of non-bank financial institutions, certified ICFM UK specialist.

A leading scholar in actuarial valuation and financial security, her decades of research into internal audit and IFRS (International Financial Reporting Standards) have heavily informed the landmark NBU Resolution No. 203, a regulation that now dictates how Ukrainian insurers must calculate their liabilities.

We sat down with Professor Dryha to discuss how her research is being used to stabilize Ukraine’s financial markets against both wartime volatility and systemic fraud, and why the old ways of “guesswork” are dead and how data-driven rigor is now the primary shield for Ukrainian policyholders.

The Death of the “Percentage” Model

– Professor, your career has focused on the intersection of academic theory and regulatory policy. In 2024, Ukraine officially implemented the new Law “On Insurance.” Why was the previous model, which many deemed “sufficient”, actually a threat to Ukraine’s financial security?

– The previous system was, quite frankly, an invitation to instability. It relied on a “premium-oriented” model where reserves were calculated as fixed coefficients or percentages of premiums collected. In the academic world, we saw the danger of this years ago: it assumes that risk is linear and uniform.

In reality, two insurers can collect the same $100 mn in premiums, but one might be insuring short-term travel risks while the other covers 30-year life policies or complex industrial liabilities.

Professor Zhanna Dryha

The old model couldn’t see the difference. It created a dangerous “information asymmetry” where neither the regulator nor the consumer knew if the company actually had the money to pay a major claim. This wasn’t just an accounting flaw; it was a systemic vulnerability.

Your research has focused heavily on “financial security.” How does the shift to NBU Resolution No. 203 specifically prevent the “hiding” of bad debt or insolvent portfolios?

– This is where my work on insurance fraud detection and internal audit comes into play. Under the old system, it was easy to “mask” insolvency by manipulating premium inflows.

The new regulation mandates that reserves be treated as evidence-based liabilities. By requiring reserves to be calculated separately for Life and Non-life segments, we have effectively built

firewalls within these institutions. You can no longer use the cash flow from a life insurance portfolio to “plug the holes” in a failing non-life segment. It forces transparency that makes the “creative accounting” of the past nearly impossible to sustain.

Understanding the “Best Estimate” and “Risk Margin”

Let’s get into the technical substance of the reform. The “Best Estimate” is now the gold standard. How does this practically change the daily operations of a Ukrainian insurer?

– It moves the insurer from a “compliance” mindset to a “modeling” mindset. A “Best Estimate” is an unbiased assessment of future cash flows. This means an insurer must now justify every single assumption – claim frequency, severity, administrative expenses, and even behavioral factors of policyholders – using hard data.

For a CFO, this means their actuarial department is no longer just a “back-office” function; it is now the most important room in the building. Every management assertion must be verifiable. If you say you have $500 million in reserves, you must show the actuarial math that proves it.

In a country facing a literal war, how do you define a “margin” that is actually sufficient?

– This is a critical point. The “Best Estimate” is our most realistic prediction of the future, but the Risk Margin is our admission that the future is uncertain. Especially in Ukraine, we face “unknown unknowns” – macroeconomic shocks, sudden inflation, or catastrophic events.

The Risk Margin acts as a capital buffer. It is an additional layer of protection designed to cover potential deviations where actual claims exceed our projections.

From a financial security perspective, it performs a preventive function: it reduces the incentive to understate reserves and ensures that even if the “Best Estimate” is slightly off due to a shock, the insurer remains solvent and the policyholder remains protected.

The Global Context: IFRS and EU Integration

You are an expert in IFRS application in regulated sectors. How does this new Ukrainian model bridge the gap between local standards and the global “Solvency II” framework?

– Ukraine’s path to the EU Single Market requires us to speak the same financial language as Brussels and London. Our new methodology, specifically NBU Resolution No. 203, is essentially an implementation of the “Three Pillars” of Solvency II.

By aligning our reserving with IFRS 17 (Insurance Contracts) and IFRS 9 (Financial Instruments), we are telling the world that Ukrainian insurers are operating under the same rigors as those in Germany or France.

This is not just about being “correct”; it’s about being “investable.” When a foreign reinsurer looks at a Ukrainian balance sheet today, they see a “Best Estimate” they recognize and a “Risk Margin” they can quantify.

You’ve spent a significant portion of your career studying internal audit and the reliability of reporting. How does the new law change the role of the “Internal Auditor” within these firms?

– The Internal Auditor is no longer just checking if the receipts match the ledger. They are now tasked with auditing the actuarial models themselves. Under the new regime, internal control becomes a 360-degree ecosystem.

The auditor must verify the quality of the data going into the “Best Estimate” model. If the data is “garbage,” the reserve is “garbage.” This holistic approach (linking actuarial science, accounting, and audit) is the only way to ensure the reliability of financial reporting in a high-risk environment.

Financial Security and Fraud

Finally, Dr. Dryha, in terms of the reconstruction of Ukraine, as a process that will require billions in insured investments, what would be the biggest challenge remaining?

– The challenge is always the human factor. There is always a risk of manipulation and fraud. My ongoing research focuses on detecting “abuses” in insurance activity. Even with the best laws, we need a culture of integrity.

The new regulatory mechanisms are a massive step forward, but they must be supported by continuous education and a robust “supervisory loop” by the National Bank.

So, you can think of it as we have built the engine for a stable insurance market, but now we must ensure that the data that fuels this engine remains pure.

If we maintain this level of actuarial rigor, the Ukrainian insurance sector will not just survive the war; it will become the foundation for the nation’s rebirth.

FAQ

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Zhanna Dryha, Doctor of Economics, Professor of the Department of National Security, Public Management and Administration, expert in financial regulation and insurance supervision, specializing in accounting and internal audit of non-bank financial institutions, certified ICFM UK specialist.