The level of capital declared by many insurance companies is overestimated, and financial stability indicators are not true, according to the Financial Stability Report of the National Bank of Ukraine (NBU) published on Wednesday.
According to the report, the central bank is concerned about most of the requirements to reinsurers. At the same time, about a third of the premiums were transferred to insurers whose solvency is uncertain, which means that the probability of receiving reimbursement is small.
In addition, some insurance companies hold funds in bank accounts exclusively for reporting on quarterly dates. After that, the funds from the accounts are transformed into other assets. Of 150 financial institutions analyzed, similar behavior is characteristic of more than half of the companies. But in general, their deposits in banks make up less than 20% of the total deposits of insurers.
The NBU said that insurance companies need high-quality and liquid assets in order to make insurance payments on time. Such assets, in particular, are government bonds and funds in deposit accounts. At the same time, many insurers invest in illiquid assets which real market value is impossible to establish – capital of enterprises, shares and investment certificates. The income from such assets declared in their financial statements averages less than 5% per year, which is significantly lower than the current profitability of deposits or government bonds, and it is almost impossible to turn them into liquid assets. Some of the securities are seized or their circulation is stopped. Another significant component of the assets of a number of companies – accounts receivable – often in practice has no market value.
According to the regulator, the insurance market requires a fundamental change in the rules of the game, since its development is constrained by imperfect regulation, which in many aspects is not consistent with the Insurance Core Principles of the International Association of Insurance Market Supervisors (IAIS) and the European Solvency directive. Consumers should receive additional guarantees that their rights will be protected, and they will receive insurance indemnities on time and in full, the central bank said.
“The priority for the NBU will be to strengthen the financial stability of insurance companies, introduce the best corporate governance practices and internal supervision systems, respond in advance to financial problems and violations of the protection of the rights of consumers of financial services,” the NBU said.
Life insurance companies of Ukraine in January-March 2020 collected UAH 1.253 billion of gross insurance premiums, which is 22.8% more than in the same period in 2019.
According to the report on the website of the National Commission for the State Regulation of Financial Services Markets, 95% of total insurance premiums came from individuals, 5% from legal entities.
For the first quarter of 2020, the number of insured individuals increased by 11.8% or by 543,326 people, to 5.132 million people.
During this period, life companies paid customers UAH 146 million, which is 0.1% less than for the same period in 2019
The value of changes in life insurance reserves amounted to UAH 851 million, which is 3.7 times more than a year earlier. In particular, investment income, which is used when calculating insurance tariffs, amounted to UAH 75.1 million (16.6% more), and indexation of the amount of insurance sums some UAH 20.5 million (26.3% less).
In the first quarter of 2020, six life insurance companies received a negative value of growth in life insurance reserves totaling UAH 7.9 million, which is associated with the early termination of insurance contracts (in the first quarter of 2019, while seven life insurers declared a negative value for the total amount of UAH 25.4 million).
The Ukrainian insurance market this year could cut the volume of insurance premiums collected by 20-30% compared with 2019 due to the coronavirus disease (COVID-19) pandemic and the economic situation, according to insurers polled by Interfax-Ukraine.
“We have made three scenarios: from optimistic to pessimistic. All three scenarios provide for deviation from planned sales plans. Under an optimistic scenario, we (and possibly the entire market) will reach last year’s sales figures (around 5%); the average scenario provides for a 15% drop compared to last year; the pessimistic scenario can mean a drop of 30% or higher for the market compared to last year. We are optimistic,” Deputy Board Chairman of ARX (formerly AXA Insurance) Viacheslav Havrylenko said.
The forecast for a decrease in market volumes by 20-30% was made in the insurance companies Guardian and Euroins Ukraine. At the same time, according to Euroins Ukraine, the crisis will continue in 2021.
At the same time, the TAS Insurance Group said that the insurance market after lockdown should recover in a couple of months. Two factors can prevent this: a sharp jump in the hryvnia exchange rate to the U.S. dollar or significant problems with the income of the population due to the long lockdown and the fact that many were forced to go on vacation at their own expense.
“If there are no serious shocks, we see no reason not to cope with the tasks that we have set for ourselves this year. We, as a company focused on retail sales, are not so dependent on the corporate sector, which will suffer the most in the crisis Therefore, at the moment I don’t see the need to make any considerable adjustments to our plans, but time will tell,”, Board Chairman of TAS insurance group Pavlo Tsaruk said.
According to UNIQA insurance company, it all depends on the duration of the lockdown and changes in its regime. With the weakening of quarantine from the end of April and the gradual exit from it during May, the impact will be, but a significant drop will probably be avoided. Most stable and capitalized insurers must cope with these challenges. Therefore, now customers should pay close attention to the reliability, stability and financial viability of the insurer, the company said.
Asked what companies intend to do in order to minimize possible losses in the business, most insurers said that they intend to optimize processes and costs that are not necessary now, to work on diversifying the portfolio, and not to stop providing a high level of service for all types insurance, continue digitalizing business processes, enhancing responsibility and discipline.
“Crises are not only problems, but also always opportunities. We have long wanted to abandon paper policies and are actively introducing electronic policies wherever possible. Also, quarantine made it easier for us to introduce digital channels of interaction with customers who did not want before remote work, now they actively and with pleasure use our services to purchase policies and settle losses, including self-purchase of policies online on our website,” Havrylenko said.
According to Board Chairman of Alfa Insurance Iryna Hevel, “the crisis will force insurers to diversify the portfolio, because no matter what, one need to adapt to new realities, re-profile sellers, restructure work with partners and customers. But also, these new realities will definitely speed up and launch the digitalization of processes in companies. We’ll see how the situation develops, but we would like the economy and each particular business to recover as quickly as possible,” she said.
Most of the market players surveyed consider the worst economic situation in Ukraine and the risk of its deterioration, the state of uncertainty, the lack of stability and understanding of how long it will last, the emotional state of the team and customers to be the most difficult.
Ukrainian insurance companies in 2019 collected UAH 169.113 million in premiums under contracts signed via resident agents, which is 53.9% more compared with 2018 (UAH 109.837 million), the National Commission for Financial Service Markets Regulation has reported.
According to the regulator’s website, the number of contracts concluded through resident agents for the year increased 3.5 times, to 24,745.
Of the total amount of collected premiums, premiums from personal insurance amounted to UAH 116.558 million (1,996 contracts), UAH 31.9 million for property insurance (231), UAH 13.509 million for mandatory insurance (22,200), UAH 3.325 million life insurance (33), and UAH 3.997 million for liability insurance (279).
The amount of remuneration for the provision of such intermediary services last year increased 1.9%, to UAH 28.145 million.
According to the regulator, insurance payments received by nonresident insurers under insurance contracts amounted to UAH 9.774 million, which is 3.7 times more than in 2018. The remuneration for 36 concluded agreements amounted to UAH 771,000 (UAH 580,000 in 2018). At the same time, the regulator said that in 2019, payments under the above agreements were not made.
Nonresident reinsurers through brokers were given UAH 920.7 million for reinsurance under 258 contracts, which is 17% less than a year earlier (UAH 1.111 billion). At the same time, payments were made in the amount of UAH 146.316 million, which is 62% less than in 2018. The remuneration of brokers in 2019 amounted to UAH 34.618 million (a rise of 17.5%).
Ukraine’s life insurance companies in 2019 collected UAH 4.624 billion of gross insurance premiums, which is 18.4% more than a year earlier.
According to the report on the website of the National Commission for the State Regulation of Financial Services Markets, 97.1% of the total insurance premiums came from individuals, 2.9% from legal entities.
As of December 31, 2019, the number of insured individuals increased by 14.7%, to 5.133 million.
During this period, life companies paid customers UAH 575.9 million, which is 18.3% less than in 2018.
The value of changes in life insurance reserves amounted to UAH 1.017 billion, which is UAH 1.4 million less than a year earlier. The regulator also notes that the bulk of the change in life insurance reserves is formed under other accumulative insurance contracts, namely, UAH 898.9 million.
In 2019, seven life insurance companies received a negative value of increase in life insurance reserves for a total of UAH 76.10 million, which is associated with the early termination of insurance contracts.
The increase in life insurance reserves amounted to UAH 1.093 billion. The largest increase in insurance reserves (more than UAH 100 million) was declared by four life insurance companies in the amount of UAH 574.3 million, UAH 169.6 million, UAH 146.4 million and UAH 122.3 million, respectively.
According to the commission, the number of life insurance companies in Ukraine at the end of 2019 decreased to 23.
The volume of reinsurance by Ukrainian insurers in Austria in 2019 grew 2.5-fold, to UAH 639 million, being 19.4% of the total reinsurance volume abroad (8.5% in 2018), according to a posting on the website of the National Commission for Financial Service Markets Regulation of Ukraine.
The share of reinsurance in Germany increased from 18.6% in 2018 to 22.3% in 2019 (to UAH 535 million), the U.K. it decreased from 23.7% to 17.3%, to UAH 569.9 million, Poland it decreased from 12.4% to 10% (UAH 331.3 million), in Switzerland decreased from 10.6% to 7% (UAH 229.8 million), in France increased to 6% from 5% (UAH 196.8 million), in the United States decreased from 4.2% to 3.6% (UAH 119.6 million).
According to the regulator, outbound reinsurance operations for the reporting period decreased 6.8%, to UAH 16.713 billion. In addition, reinsurance with nonresident reinsurers increased 10%, to UAH 3.298 billion.
Payments compensated by resident reinsurers amounted to UAH 297.8 million, which is 30.9% less than in 2018, for nonresident reinsurers it was UAH 2.21 billion, or 9% more than in 2018.
In relation to gross insurance premiums, the share of outbound reinsurance as at December 31, 2019 was 31.5%, which is 4.8 percentage points less than on the same date a year earlier.