New insurance facility aims to boost investment into Ukraine

A first-of-its kind insurance program with the US International Development Finance Corporation (DFC) has been launched in a bid to build insurance capacity and accelerate new capital investment and economic recovery in Ukraine.

Broker Aon is behind the $350 million scheme and has coordinated a comprehensive $50 million reinsurance facility, working closely with DFC and the Ukraine Ministry for Development of Economy and Trade to support the “active and ongoing issuance of on-the-ground war risk policies to businesses operating in Ukraine”. Aon and DFC partbered on an additional $300 million in war risk insurance specifically designed for Ukraine’s health care and agriculture industries.

“Capital will not go where it is not protected and this unprecedented program with the US International Development Finance Corporation is intended to unlock and accelerate investment in Ukraine at a time when the need is most acute,” said Eric Andersen, president of Aon, at the Ukraine Recovery Conference in Berlin. “This groundbreaking facility will enable the local insurance industry to appropriately price risk and draw much needed new capital into Ukraine, while creating capacity and capability in the country to support reconstruction.”

DFC will act as the reinsurer for qualified insurance companies issuing policies in Ukraine and use its balance sheet to assume $50 million of war-related reinsurance risk in Ukraine.

Aon said the facility builds upon two well-established DFC models: on-lending, which guarantees loans made by local banks in Ukraine to facilitate lending to priority geographies and sectors; and insurance underwriting, especially for war and political risk. The additional $300 million of capacity in war risk for Ukraine’s health care and agriculture sectors highlights the robust demand for accessible, affordable war risk insurance by private companies operating in Ukraine that will only increase during reconstruction.

“The US Government is taking steps to help drive capital to the private sector in Ukraine,” said DFC CEO Scott Nathan at the Ukraine Recovery Conference. “The private sector is critical to Ukraine’s recovery, and we are leveraging our unique tools, especially political risk insurance, to build investor confidence in Ukraine at this critical moment.”

The first firm to be certified as a qualified Ukrainian insurance company to access the reinsurance facility is ARX, a Ukrainian subsidiary of Fairfax Financial. Aon said it, DFC and ARX will work together to build a portfolio of war risk insurance policies for companies operating in Ukraine and support ARX in expanding its war risk insurance offering in the country.

“With the facility in place, qualified insurance companies can select to provide rapid, on-the-ground war risk policies to businesses operating in Ukraine,” the broker added. “In the long-term, this facility can encourage private market participation in Ukraine by other reinsurers, promoting a foundation of private investment that will be essential to a recovery.”

The announcement follows the appointment, in September last year, of former commerce secretary Penny Pritzker to lead the US government’s response to the war in Ukraine as the US special representative for Ukraine’s Economic Recovery. In this role, Pritzker convened the private sector, multilateral banks and businesses operating in Ukraine to mobilise support for the Ukrainian economy and has been instrumental in advancing the work of Aon and the DFC to mobilize the insurance industry to bring $350 million in private capital to support Ukraine’s economy and recovery.

“As we looked for opportunities to support the Ukrainian economy, we recognized that a robust insurance market was essential to attracting investment in the country,” said Pritzker. “This facility and the infusion of new private capital into Ukraine will help local businesses operate in the country today, while preparing Ukraine for reconstruction and further economic growth.”