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Aon and EBRD Launch Novel War Risk Insurance Facility for Ukraine

In a significant move to bolster the Ukrainian economy and support its insurance industry, Aon plc, alongside the European Bank for Reconstruction and Development (EBRD), has unveiled an innovative war risk insurance facility. This initiative comes in response to the ongoing challenges posed by the war in Ukraine, aiming to restore confidence among investors and foster economic growth.

The newly established €110 million Ukraine Recovery and Reconstruction Guarantee Facility is designed to enhance the reinsurance capacity available for local insurers in Ukraine. This facility acts as a guarantee that aims to cover losses related to specific war risks, which are currently underwritten by Ukrainian insurers. The primary objective of this program is to leverage existing infrastructure and risk transfer mechanisms within the insurance sector, thereby addressing the acute shortage of reinsurance options for the private sector in Ukraine.

The backdrop of this initiative is the drastic decline in reinsurance availability triggered by Russia's invasion of Ukraine in February 2022. As international reinsurers largely withdrew from the Ukrainian market, local insurance providers found themselves ill-equipped to sell commercial war risk insurance, further crippling business operations. The introduction of this facility promises to improve accessibility to war risk insurance, invigorating business activities and bolstering the economy in the process.

A significant highlight of this initiative is the collaborative nature of the facility. It serves as an open platform where various insurance market participants, including international reinsurers, can engage and utilize the guarantee. Notably, the global specialty reinsurer MS Amlin has taken the lead as the first international partner to join this initiative, enabling it to offload reinsurance exposure and actively participate in providing necessary war risk coverage.

Local players such as INGO, Colonnade, and UNIQA are also set to play a pivotal role in expanding this insurance offering across Ukraine. Their extensive distribution networks are expected to help deliver war risk coverage to a wide range of businesses, particularly small and medium-sized enterprises.

Initially focusing on inland cargo, motor vehicle damage, and railway assets, the facility is designed with flexibility in mind, allowing for expansion into other asset categories depending on the evolving needs of the market. The short-term nature of the insurance policies means that capital can be recycled, potentially allowing the EBRD’s guarantee to underpin coverage for up to EUR 1 billion worth of goods and vehicles in transit annually, thus contributing significantly to economic revitalization.

Backing for this groundbreaking facility comes from multiple donors including France, the United Kingdom, Norway, and Taiwan, with additional support pledged by the European Union and Switzerland. Such a collaborative funding approach highlights the growing recognition of the need for innovative financial solutions to assist Ukraine during these challenging times.

EBRD and Aon have also worked closely with the Ukrainian Ministry of the Economy and the National Bank to guarantee that war risk insurance policies are accessible to local businesses. This coordination ensures that the facility complements initiatives by other international organizations and the Ukrainian government.

This insurance initiative marks a pivotal step forward for Ukraine, according to EBRD President Odile Renaud-Basso, who emphasized the importance of restoring confidence among businesses by protecting their assets. Aon CEO Greg Case echoed these sentiments, highlighting the firm's commitment to exploring new opportunities for investments in Ukraine amid the ongoing conflict.

Martin Burke, Chief Underwriting Officer at MS Amlin, praised the program, noting that it provides essential reinsurance capacity at a time when Ukrainian businesses need it most. The Deputy Prime Minister and Minister of Economy of Ukraine, Yulia Svyrydenko, expressed gratitude for the initiative, emphasizing its critical importance for attracting investments and supporting the local economy.

This initiative builds upon Aon's previous efforts, where they have coordinated over $465 million in public and private capital toward war risk insurance for Ukraine since the onset of the invasion. In summary, the combination of local and international collaboration through this innovative insurance facility paves the way for a more robust and resilient Ukrainian economy, offering hope for recovery amidst adversity.