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EBRD in Ukraine: Challenges and Opportunities

EBRD in Ukraine: Challenges and Opportunities. Noel Edison European Bank for Reconstruction and Development Insurance & Financial Services Director. EBRD Background. AAA-rated International financial institution, founded in 1992 and located in 29 countries from central Europe to central Asia

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EBRD in Ukraine: Challenges and Opportunities

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  1. EBRD in Ukraine: Challenges and Opportunities Noel Edison European Bank for Reconstruction and Development Insurance & Financial Services Director

  2. EBRD Background • AAA-rated International financial institution, founded in 1992 and located in 29 countries from central Europe to central Asia • Owned by 61 countries and two inter-governmental institutions • Largest single investor in Central and Eastern Europe (CEE) and the Commonwealth of Independent States (CIS) • EBRD’s objectives include: • Promoting the transition to competitive market economies by investing mainly in the private sector • Mobilising significant foreign direct investment • Investing in projects and companies whose needs cannot be fully met by the market 2

  3. EBRD Background Debt €36.5 billion Equity €9.4 billion Cumulative Gross Signings: All sectors (€bn) €45.9 billion invested in over 2,750 projects Financial Institutions (FI) €14.9 billion (32%) invested in 1,282 projects Debt €10.1 bn (68%) Equity €4.8 bn (32%) FI is a key element of the EBRD’s portfolio 4

  4. EBRD’s Profile in Ukraine • Ukraine is the Bank’s largest country of operation after Russia • EBRD in Ukraine since 1993, 18 years of experience in the local market • 41 staff based in Kiev, including 28 bankers • Total investments in Ukraine of over USD 7 billion • Approximately USD1.5 billion invested last year, USD870m into financial institutions • Total 249 projects (42 in 2009) • The EBRD is the largest financial investor to the private sector in Ukraine

  5. EBRD Insurance in CIS Russia $150mln Equity Investment May 2007 Purchase of up to 10% stake in RESO Insurance Ukraine $4mln Equity Investment March 2008 30% equity stake in a greenfield life company alongside Renaissance Insurance Group / Sputnik Group Limited Russia € 26.5mln Equity Investment November 2008 30% equity stake in a greenfield direct insurance company Armenia USD 0.5 million equity finance 35% equity stake in one of Armenia’s leading insurers Regional CHF250 million equity framework Six insurance and pensions sub-projects in three countries Azerbaijan EUR 1.2 million equity finance 30% equity stake in an Azerbaijani non-life insurer 6

  6. Ukrainian Insurance Sector Real market, net of financial schemes, Swiss Re Sigma (2007) and market sources 8

  7. Ukrainian Insurance Sector • Severely hit by financial crisis: 2009 non-life premiums down by more than 20%, life premiums down by more than 30% • Challenging market conditions. • Retail new business volumes down due to bank distribution channels drying up • Corporate new business volumes down due to reduced budgets and pressures in large corporations • Retention levels down, Claim payments up • Insurance receivables and bad debts up • High level of financial (tax) schemes – real insurance penetration is below official 2.5% • Compulsory insurance (motor) has low uptake (30-40% vs. 90-95% in Russia) • Majority of European insurers are yet to build a strong market position. Only AXA, Uniqa have sizeable presence, PZU and QBE also present • Highly fragmented market – top 10 only have 60% market share. No dominant market leader – AXA, Lemma, Providna have 8-12% each – opportunities for consolidation • Capital eroded by financial crisis • Regulatory developments could spur growth • Economic recovery in heavy industries will drive growth of corporate insurance • Life insurance a promising sector in the medium to long term, but currently only 5% of premium volume 7

  8. Positives Open to foreign ownership Growth potential – emerging middle class Room to grow in CMTPL Scarcity value of targets Some major strategic investors are yet to enter Negatives Questionable quality of insurance book Tax schemes Profitability Transparency Price expectations Perception of political risk Under developed life & pensions sector Ukrainian Insurance Sector 9

  9. EBRD’s Value Proposition • Experienced financial investor in insurance companies • Local experience, regional network • Relationships with key strategic insurers • Provider of technical assistance to aid company development and promote transparency • Support dialogue between company, government and regulator 10

  10. EBRD Project Criteria • €1-200 million • Minority positions, up to 35% • 7-10 year maximum investment time horizon • Reputable local or strategic partners • Our success is measured by a combination of transition impact and investment return 11

  11. Contacts Noel Edison Director of Insurance & Financial Services, London Email: EdisonN@ebrd.com Phone: +44 20 7338 6638 Alexander Pavlov Head of Financial Institutions Ukraine Email: pavlova@ebrd.com Phone: +380 44 277 1100 EBRDOne Exchange Square, London. EC2A 2JN, United Kingdom www.ebrd.com 12

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