The Cabinet of Ministers approved the list of military and political risks and the procedure for their insurance and reinsurance
The Cabinet of Ministers of Ukraine approved the list of military and political risks, as well as the terms and conditions of insurance (reinsurance) of military and political risks during the activities of the Export Credit Agency (ECA). The relevant decision was adopted at a meeting of the Government on April 9, 2024.
“Increasing the instruments of insurance of military and political risks during the war in Ukraine should contribute to the attraction of investments in the Ukrainian economy already now. The adoption of the government resolution is aimed at this. It will allow to improve the legal regulation of the list of military and political risks, conditions and procedure of insurance of investments against military and political risks in the implementation of activities of the Export Credit Agency. EKA will be able to insure and reinsure against military and/or political risks investment loans of Ukrainian banks for Ukrainian exporters, as well as direct investments. This will provide support for Ukraine’s economy, stimulate the recovery of industrial production, create new jobs, fill budgets at all levels with funds from tax payments and strengthen the state’s defense capabilities,” explained Deputy Minister of Economy of Ukraine Volodymyr Kuzyo.
This mechanism will make it possible to eliminate the gaps that limit the possibility of insuring domestic investments of EKA, including in the conditions of military actions and post-war reconstruction.
The following insurance risks, which are widespread in international practice and may arise on the territory of Ukraine, are classified as military risks:
- military conflict, including war or armed conflict, armed aggression, hostilities, mass riots;
- violent change or overthrow of the constitutional order or seizure of state power;
- acts of terrorism and/or sabotage;
- occupation, annexation.
The following insurance risks are classified as political risks:
- forced alienation of property/removal of property of a business entity carried out by the state authorities of Ukraine (deprivation of property ownership);
- groundless (illegal) revocation of the license by the market regulator or forced termination (suspension) of the business entity’s activity by state bodies established by a court decision that has entered into force, except for cases when such termination of activity is caused by the business entity’s failure to comply with the requirements of the law;
- non-fulfilment or refusal of the state to fulfill obligations defined by legislation, strategic or program documents approved in accordance with the procedure established by law, and/or an investment agreement, provided that the economic entity has the right to demand the fulfillment of such obligations;
- the introduction by the state of a ban (payment embargo, moratorium) on making settlements;
- impossibility of currency conversion or currency transfer abroad by a business entity, except for cases provided for by law.
The Cabinet of Ministers approved the list of military and political risks and the procedure for their insurance and reinsurance
PJSC “Export Credit Agency” was founded in 2018. The sole founder and shareholder of EKA is the state represented by the Cabinet of Ministers of Ukraine. The management of corporate rights belonging to the state in the authorized capital of EKA is carried out by the Cabinet of Ministers of Ukraine through its authorized management body – the Ministry of Economy of Ukraine.
The main goal of the agency’s activity is to support and stimulate the large-scale expansion of the export of goods (works, services) of Ukrainian origin. The institution protects Ukrainian exporters from the risk of non-payments and financial losses related to the execution of foreign exchange contracts, and also provides a wide range of services that allow Ukrainian exporters to strengthen their credit policy and effectively manage their financial flows.
At the end of last year, the Verkhovna Rada adopted a law allowing the Export Credit Agency to insure investments of Ukrainian and foreign companies in Ukraine against war risks.
We would like to remind you that on January 1, 2024, amendments to the Law “On Financial Mechanisms for Stimulating Export Activities” entered into force, according to which the Export Credit Agency (ECA) was given the following tasks:
- insurance and reinsurance of export loans, as well as insurance and reinsurance against military and/or political risks of loans of Ukrainian business entities, related to investments in the creation of objects and infrastructure of the processing industry and the export of goods (works, services) of Ukrainian origin;
- insurance and reinsurance of direct investments from Ukraine, as well as insurance and reinsurance of direct investments in Ukraine against military or political risks.
At the same time, the Cabinet of Ministers, in agreement with the National Bank, had to determine the list of military and political risks, as well as the conditions and procedure for insurance (reinsurance) of such risks in the activities of the EKA. Since the relevant regulatory act has not been adopted, it is currently difficult to determine whether the agency will insure investments in Energy infrastructure objects from military risks. In accordance with the Law “On Financial Mechanisms for Stimulating Export Activity”, the insurance amount under the insurance contract or the amount of financial support (coverage) under the EKA guarantee cannot exceed 85% of the amount of the foreign economic contract.
In addition, on February 5 of this year, the Financial Stability Board approved a conceptual memorandum for the creation of a fully functional war risk insurance system in Ukraine. The defined model seems to provide for the introduction of mandatory and voluntary insurance of military risks. But even this document is not available because it was not made public.
In Ukraine, there are already non-state insurance companies that insure property against war risks. However, it is clear that insurance against such risks of power plants and other energy infrastructure facilities (ports, airports, bridges, overpasses, dams, etc.) is not their specialty.
At the same time, investment insurance against war risks is available through export credit agencies of foreign countries and specialized organizations.