Following Russia’s unprovoked invasion and subsequent full-scale illegal war against Ukraine on 24 February 2022, Ukraine’s central bank resorted to extraordinary measures to save the country’s financial system from collapse. These measures proved effective and saved the banking system and UAH from significant decline, while also maintaining an uninterrupted functioning of payments and settlements within the country. For the insurance market the introduction of these measures meant that any cross-border payments for reinsurance of most Ukrainian risks were prohibited with some limited exceptions (such as nuclear and international transport).
On 9 December 2022, the National Bank of Ukraine (the “NBU”) adopted long-awaited amendments to its Regulation “On Operation of the Banking System under Martial Law” No. 18 which permits Ukrainian insurance companies to make cross-border payments under reinsurance contracts with non-resident reinsurers.
Starting from 13 December, Ukrainian insurers have been able to make reinsurance payments to non-resident reinsurers subject to the following conditions:
- under contracts entered into before 24 February 2022 and based on the documents issued by 31 May 2022; or
- under contracts entered into between 24 February and 31 May 2022 but only if the risks covered include war risks.
Further, to arrange such cross-border payments from Ukraine, insurers and reinsurers must meet certain requirements. In particular, a non-resident reinsurer must possess a financial reliability rating that, according to the classification of international rating agencies, corresponds to a level at least "A3" (Moody's Investors Service), "A-" (Standard & Poor's), "A-" (Fitch Ratings), "A-" (A.M. Best).
In turn, a Ukrainian insurer making cross-border payments must correspond to a number of requirements, including, among others, the following:
- it must have transparent ownership structure;
- it must have an impeccable reputation, and its owners of substantial interest and its principal managers must possess impeccable reputation;
- it must comply with the relevant standards of solvency, capital adequacy and risk-averseness of operations.
The NBU confirms compliance with the above requirements by each insurer.
Additionally, the amendments introduce a number of other updates, including the following:
- payments to foreign reinsurers under contracts covering aviation risks;
- payments to foreign reinsurers under “Green Card” international insurance contracts.
These changes were adopted to enable Ukrainian insurers to perform their obligations towards foreign reinsurers without exposing the foreign currency reserves of Ukraine to an uncontrolled outflow.
