Finance companies and pawnshops increased volumes of their assets and main types of services, and non-life insurers saw resumed growth in their premiums. Life insurance premiums, on the other hand, continued to decline, and credit unions’ assets shrank. This is according to the latest Non-bank Financial Sector Review.
Insurers
The assets of life insurers increased by 4% in Q2, while the assets of non-life insurers decreased by 1% as a number of companies were removed from the register.
In Q2, gross premiums of non-life insurers increased by 10% qoq, and their volume was higher than in the same period last year. Premiums grew in both retail and corporate segments. Claims paid also grew along with premiums, with the ratio of claims paid rising from 36% to 40% over the past four quarters.
After a sharp increase in H2 2023, life insurance premiums have been declining for two consecutive quarters. However, in April–June their volumes were 15% higher than last year. At the same time, the volume of claims paid grew slightly in April–June. As a result, the claims paid ratio also gradually increased in annual terms.
In Q2, insurance premiums grew in transport insurance (C&C, Compulsory Motor Third Party Liability Insurance, Green Card), while personal insurance (life and health) declined slightly. These products remain the key ones in the market: in Q2, they accounted for 84% of premiums earned and 93% of claims paid.
In H1 2024, the profits of life and non-life insurers increased compared to H1 2023, although the return on equity improved only in the non-life insurance segment. The number of unprofitable companies continued to decline.
As of the end of H1, 34 companies – of which 29 institutions were in the State Register of Financial Institutions as of mid-September – violated at least one of the regulator's requirements: solvency capital ratio (SCR) and minimum capital ratio (MCR). Two-thirds of the violators of the requirements have submitted to the NBU their recovery plans and/or funding plans, almost all of which have already been validated. However, the remaining companies have already left the market, are planning to leave the market voluntarily, or will be withdrawn due to their inability to meet the new requirements.
Credit Unions
Credit unions continued to leave the market, and their assets declined by 1% qoq. The loan portfolio remained almost unchanged over the quarter. At the same time, the volume of deposits in Q2 decreased by 1%, and additional share contributions by 13%.
Net interest income grew by 2% over the quarter, but continued to decline year-on-year due to a decrease in the loan portfolio and interest rates on all types of loans. This resulted in operational inefficiency of credit unions due to almost unchanged high administrative expenses.
Despite credit unions’ operational inefficiency, the segment as a whole made a profit due to the release of provisions and assistance from USAID.
As of the start of July, eight credit unions were in breach of the capital adequacy ratio.
Finance Companies and Pawnshops
In Q2, the segment's assets declined by 12.3%, but the volume of all types of services rose.
Finance companies have been increasing lending to households for four quarters in a row. The volume of new retail loans grew by 5.3% in Q2, but was still lower than the pre-war level. At the same time, volumes of new corporate loans continued to decline.
In April–June, the volume of leasing transactions increased by almost a third. Factoring transactions also noticeably grew, by 22.7%. And the volume of guarantee transactions rose significantly for the first time since the onset of the russian invasion.
Over the first six months of 2024, finance companies generated UAH 5.8 billion in profit, of which almost half was earned by Ukrfinzhytlo, the state-owned operator of the eOselia program.
Pawnshop business picked up somewhat in Q2. The volume of assets and new loans grew, and revenues from financial services increased, resulting in a profit for the segment.
Prospects and Risks
In July, the deadline expired for insurers to bring their operations in line with the new regulatory requirements. Most market participants met the requirements, but some institutions needed to agree solvency recovery plans or funding plans with the NBU. Insurers that fail to submit a proper plan in a timely manner are facing the risk of being withdrawn from the market. Insurers that have validated their plans with the regulator must strictly implement them to improve their performance. Small institutions that do not have a significant impact on the insurance market as a whole are mostly at risk. The exit of insufficiently solvent companies from the market will help strengthen the resilience of insurers in the future.
The NBU continues to change approaches to the preparation and submission of reports by participants of the non-bank financial services market: they have been reporting under new rules since the start of the year. The frequency of reporting certain information has been changed for finance companies and pawnshops. Starting from January 2025, the institutions will provide data on regulatory balance sheets and off-balance sheet liabilities on a monthly basis, while currently they report quarterly.
The Non-bank Financial Sector Review is a report that was first published by the NBU in October 2020. It focuses on the activities of NBU-regulated non-bank financial institutions, such as insurers, credit unions, finance companies, and pawnshops. The review highlights key trends in the non-bank financial market and provides comprehensive insights into its performance.
In accordance with the Rules for the Compilation and Filing of Reports with the National Bank of Ukraine by Nonbank Financial Services Market Participants, institutions reported using the updated reporting forms for both Q1 and Q2 2024. The reclassification of reporting components by market participants as a result of the transition to the new reporting forms might have affected the dynamics of the indicators.
Insurers’ regulatory reporting data reflect the amount of their assets and liabilities, including the amount of certain components according to prudential requirements, primarily provisions.