Some insurance companies may leave the market, consolidation will continue – First Deputy Head of the NBU

Some insurance companies may leave the market due to compliance with the requirements of the Solvency II Directive, which implies further consolidation, First Deputy Head of the National Bank of Ukraine (NBU) Kateryna Rozhkova noted in an interview with the Interfax-Ukraine agency.

“The new Insurance Act entered into force in January 2024. It is much more complex and strict than the previous one and is aimed at implementing the EU Insolvency Directive II,” she stressed.

Rozhkova explained that a three-tier system of regulatory capital for insurers has now been established, with its own limits at each level. In addition, the requirements for regulatory capital have become more stringent, including minimum capital thresholds.

“And that's not all. The Solvency II Directive, which we are implementing as part of European integration, introduces more complex criteria for assessing asset quality. There will no longer be a direct list of acceptable assets. Instead, it will require market valuation and risk analysis of investments. This will require high technology and staff training,” she added.

Rozhkova noted that when the NBU began to perform the functions of the regulator of the insurance market, it initially focused on disclosing the ownership structure of insurance companies and forming insurance reserves, which marked the beginning of the market cleansing.

“Then, when we introduced additional asset requirements — excluding questionable securities and restricting real estate ownership — some companies either voluntarily left the market due to their inability to comply or were removed by the regulator. That was the first wave of market cleanup,” she explained.

According to Rozhkova, those companies that were not involved in traditional insurance are leaving the market. Instead, they used various optimization schemes or did not develop, realizing that they could not meet the new requirements, and their shareholders would not receive the expected profit. Companies that do not have the financial capacity to work in the new conditions will be forced to merge.

As an example, she cited the Nuclear Insurance Pool, which includes 15 insurance companies. “According to the international convention on nuclear insurance, the operator of a nuclear installation must insure its liability for 150 million SDR, which is about UAH 8.3 billion. There are four operators of nuclear installations in Ukraine. The pool companies cover only 6.3% of this liability, while foreign nuclear pools cover 70%. However, some risks remain uninsured, and the question arises as to how the state will solve this problem. This is an international convention, and we must find resources to cover the uninsured part,” she said.

“Consolidation is not always a negative process. Statistics show that, despite the reduction in the number of insurers by two-thirds, the total assets of the segment have not decreased,” Rozhkova noted.