The financial services Commission and a group of ICU held the seminar-presentation of the new legislative requirements for solvency, quality of assets and market opportunities by investing insurers. Representatives of more than 100 Ukrainian insurance companies were explained the details entered into force “Provisions for the mandatory criteria and standards of capital adequacy and solvency, liquidity, profitability, asset quality and riskiness of the insurer’s operations”.
This provision developed on the basis of accepted in the world practice the quality requirements of the capital and assets of insurers and is intended to increase the reliability of the Ukrainian insurance market.
In particular, according to the regulations, the insurance company will be required on any date to adhere to the established criteria of liquidity, profitability and asset quality, the standards of solvency and capital adequacy, risk operations. The standard of solvency and capital adequacy should also follow the owner of a substantial participation in the insurer. This standard is defined as the sum of the acceptable assets which on any date shall not be less than the normative volume of assets.
In turn, the standard volume is defined as the sum of the following values: Z + K, Z + WIP, where
Z – the value of long-term and current liabilities;
K – value is equal to:
30 million – for an insurer who carries on or plans to carry out the types of insurance other, than life insurance;
45 million – for an insurer who carries on or plans to carry life insurance;
WIP – regulatory solvency margin, which is calculated in accordance with the law.
According to the Regulation, insurance companies have stock in 2 years to bring the standard of solvency and capital adequacy of insurance companies in accordance with the new requirements.
“According to the law insurance companies along with banks enterprises of public interest. So no matter big or small insurance company. It is important to us – whether it is solvent? Should not be that insurers with liquid assets of several thousand hryvnia had commitments for hundreds of millions, and the insurance payments were made at the expense of new customers. The new requirements are designed to exclude such a situation and require the company to have a resource for the efficient operation and full compliance with its obligations as an insurance and not an insurance. Together with insurers, we have to fight for the reliability and investment attractiveness of the insurance market. In the end, this will boost customer confidence,” commented a member of the financial services Commission Alexander Zaletov.
Regulation also establishes the requirements for the standard of asset quality, at least 20-40% of insurance reserves (depending on the activity of the company) must be low-risk: government bonds, bonds of international financial organizations, current accounts and deposits in banks with rating of at least AA according to the national rating scale and their bonds, the balance of the insurer in centralized funds MTIBU, the rights of requirements to reinsurers-non-residents on contracts for the international system “Green card” and nuclear insurance.
“Investing in government bonds insurers opens broad possibilities: first, they are going to cover low risk assets, and secondly, today it is one of the most profitable tools on the market rate of hryvnia government bonds is 18%, and when investing in currency papers insurers have the opportunity to hedge currency risks,” – says the head of brokerage client service ICU Evgeniya Grischenko.
“Besides, REPO operations with government bonds is a great alternative to other accommodation options short-term liquidity, and REPO transactions with government securities are accepted to cover reserves, unlike other instruments with a repurchase agreement. This allows insurers to be mobile in the management of short-term liquidity – you can place the resource at the right time under a higher rate (17.5%) and also quickly to bring him in case of need”, – says Yevgeniya Gryshchenko insurers.
Also, the ICU specialists drew the attention of insurance companies in foreign bonds. Due to their profitability they are a more attractive alternative to foreign currency deposits. On the secondary market yield of this instrument in US dollars ranges from 4.75% to 5.25% (depending on maturity) in the primary – 5.65% – 5.95%. In addition, it is a good tool to hedge currency risks. The resulting payments on government bonds currency subject to compulsory sale.
“We also expect the growth in high-quality corporate bonds in the asset composition of insurers. For two reasons. First, in the list of low-risk assets include bonds with a high credit rating. In addition, in Ukraine is reviving the corporate bond market of non-banking sector, and there are already high-quality supply for this type of securities with higher yields at levels of 19.5 to 20.5%,” – comments Evgeniya Grischenko.
The ICU group — independent financial group providing services in asset management and private equity. Group specializiruetsya on the markets of Central and Eastern Europe. Currently running ICU are assets of more than $500 million, the Majority owners of the group — its managing partners are Makar Paseniuk, and Konstantin Stetsenko.