The National Bank of Ukraine intends to revise the requirements applicable to non-resident insurers

The corresponding draft "Regulation on the Requirements for a Non-Resident Insurer When Conducting Insurance Activities in Ukraine" was published on the NBU website on April 3, 2024 ("Draft Regulation"). Proposals and comments on the Draft Regulation are accepted until April 25, 2024.

The purpose of the said regulatory act is to harmonize the current requirements applied to non-resident insurers with the most recent edition of the Law of Ukraine "On Insurance", which entered into force in December 2021, replacing the 1996 law, and was implemented on January 1, 2024 ("Insurance Law"). In particular, the main requirements for non-resident insurers are provided for in Article 6 of the Insurance Law, including the membership of the insurer's country of origin in the WTO, such country’s compliance with AML requirements and oversight of the insurers, the existence of a double taxation avoidance agreement as between that state and Ukraine, the presence of all required permits and authorisations of the insurer, and other requirements that ensure the reliability of such insurer ("Article 6 Requirements").

The main novelties of the Draft Regulation include the relaxation of requirements regarding the levels of international ratings of financial stability (solvency) ("international ratings") that non-resident insurers must meet, the introduction of new exemptions to the application of such international ratings, as well as the establishment of certain tax incentives. Let's take a closer look at these innovations below.

According to current legislation, the requirements for the ratings of financial stability (solvency) of non-resident insurers and non-resident reinsurers differ. The NBU proposes to establish uniform requirements for both categories of entities in the Draft Regulation and slightly relax them, as follows:

A.M. Best (USA)

Moody’s Investors Service (USA)

Standard & Poor’s (USA)

Fitch Ratings (UK)

Additionally, the Draft Regulation proposes that if a non-resident insurer meets the Article 6 Requirements and has experience conducting continuous insurance (reinsurance) activities for at least three years prior to the date of conclusion of the relevant reinsurance agreement, such reinsurer may carry out reinsurance (acceptance of risks from resident insurers under reinsurance agreements) without the need to meet international ratings as provided for in paragraph 5 of the Draft Regulation.

It is envisaged that, after the adoption of the Draft Regulation, tax benefits in the form of a zero tax rate (compared to the base rate of 12%) will apply to insurance payments and insurance claims in favor of non-resident insurers who meet the above requirements and the Article 6 Requirements. Resident insurers and other market participants are proposed to have a mirror obligation to ensure compliance of non-resident insurers with whom they establish relations with the Article 6 Requirements and the regulation.

With the adoption of the Draft Regulation, the Resolution of the National Commission for State Regulation of Financial Services Markets No. 2262 dated July 11, 2013, which currently regulates the requirements for the financial stability (solvency) ratings of insurers and non-resident reinsurers and the procedure for their confirmation, will be canceled. At the same time, the NBU did not announce whether it is going to also update the "Regulation on the Authorization of Financial Services Providers and the Conditions for Their Provision of Financial Services," which establishes slightly different requirements for the international ratings of non-resident insurers who are contemplating opening a branche in Ukraine.

It should be noted that in February 2023, the NBU simplified the foreign exchange regulation of operations under insurance and reinsurance contracts > More details