The Ukrainian insurance industry is showing a strong focus on financial stability. Out of a total deposit volume of nearly ₴11 bn, a staggering 94.2% is held in highly-rated banks. This trend, according to Forinsurer, highlights a strategic approach to managing insurer assets and mitigating risk.
The breakdown of these deposits paints a clear picture of prioritizing stability. A significant portion, 36%, or ₴3,985 mn, is concentrated in three state-owned banks.
These institutions are trusted pillars in the Ukrainian financial landscape and offer a reliable environment for safeguarding substantial insurer funds (see 10 Key Risks of the European Insurance Sector).
State-owned banks often serve as a foundation of trust in volatile markets, and insurers recognize this. It is a calculated move that seeks to secure assets and align with government-backed financial entities.
TOP banks with foreign capital
Beyond state-owned banks, the TOP13 banks with foreign capital represent another major destination for insurer deposits, accounting for 41.9%, or ₴4,590 mn. These banks bring an international dimension to Ukraine’s financial landscape.
By placing nearly half of their deposits in banks with foreign capital, insurers are diversifying their portfolios and tapping into the global banking network’s stability. This decision helps balance exposure to domestic financial risk and international economic fluctuations.
Additionally, the TOP10 banks with Ukrainian capital account for 11.2%, or ₴1,230 mn. While this segment represents a smaller share, it remains a critical part of the deposit landscape. These banks often cater to specific market needs and contribute to economic growth within Ukraine.
Insurers placing funds here reflect a nuanced strategy, balancing local banking relationships with the need for portfolio security.
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- TOP-25 Non-Life Insurers in Ukraine by assets and capital
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- TOP-10 Life Insurers in Ukraine by assets and capital
Yet, given geopolitical tensions and financial sanctions, the relative decline in deposits in these subsidiaries reflects insurers’ cautious approach. The ongoing conflict and economic implications are driving insurers to reassess their exposure to Russian financial institutions.
A more troubling aspect is the existence of “suspicious” banks. These banks have become less significant, with deposits from insurers in each bank now not exceeding ₴50 mn. This shift away from questionable banks indicates improved risk management practices. Insurers are clearly prioritizing security and transparency, moving funds to institutions with proven financial health. The shadow of past financial instability looms large, but the industry is making strides toward better oversight and safer investment practices.
Past Lessons and Risk Mitigation
The evolution of deposit strategies did not come without hard lessons. Last year, insurers heavily placed their funds in banks perceived as leaders (see Total Assets and Investment of Euro Area Insurance Corporations).
When ukrainian banks encountered difficulties, insurers faced limited losses. The money wasn’t physically there, mitigating the impact on the insurance sector.
However, the story was different for certain banks that collapsed, carrying real financial consequences. Khreshchatyk Bank had about ₴55 mn in insurer deposits, while Fidobank held approximately ₴5 mn. More significantly, past failures of Forum Bank, Brokbusinessbank, Nadra Bank, Delta Bank, and Imexbank left insurers reeling. These banks held genuine deposits, leading to substantial losses. The hard hit from these collapses underscored the critical need for a more conservative and diversified deposit strategy.
Adapting to Current Challenges
Fast forward to the present, and the insurance sector has made notable adjustments. Bank collapses in the current year have not severely impacted insurers, thanks to strategic reallocation of assets.
Ukrainian insurers have turned to more stable and transparent financial institutions. This proactive approach has shielded the sector from significant financial disruptions. Insurers have even taken the unusual step of prepaying taxes to the budget.
These prepayments, currently being contested in court for their legality, reflect the insurers’ ingenuity in managing liquidity during uncertain times.
The National Bank has also stepped in to enforce stricter guidelines. A new rule mandates that risk insurers must hold at least 15% and life insurers 25% of their assets in safer investment vehicles.
These include government bonds, international financial organization bonds, and deposits or bonds from banks rated “AA” or higher. This requirement is temporary but serves as a crucial buffer against future financial instability. It ensures a portion of insurer funds is shielded from market volatility and invested in reliable instruments.
Positive Trends in Deposit Returns
The industry is also benefiting from an increase in deposit returns. Despite a decline in interest rates, insurers have seen a 26% rise in interest income in the first half of this year compared to the same period last year.
This improvement suggests that insurers are making more prudent investment decisions. Previously, some banks engaged in questionable practices, not paying interest on deposits.
Insurers, in turn, had to pay fees to confirm deposit balances on reporting dates. These so-called “scheme” deposits existed only on paper, masking the lack of actual funds.
The move to highly-rated banks has eliminated much of this risk. Insurers now receive tangible returns, and the era of paper-only deposits appears to be over. This shift signifies a maturation of the insurance sector’s financial practices. The emphasis is now on transparency, genuine returns, and robust financial health. The National Financial Services Commission’s proactive measures are fostering a more stable and resilient insurance industry.
Looking Ahead
The outlook for Ukrainian insurers is more optimistic, with a solid foundation of deposits in reputable financial institutions. While the temporary regulatory measures may evolve, the emphasis on safeguarding assets will likely remain.
As insurers continue to adapt to economic shifts and regulatory requirements, their focus will be on balancing returns with security.
The lessons from past bank failures continue to shape a more cautious and strategic approach to asset management, setting the stage for a stronger and more resilient insurance sector.
