On April 9, 2024, the Cabinet of Ministers of Ukraine expanded the capabilities of Export Credit Agency (hereinafter referred to as the "ECA") by approving the list of war and political risks that ECA can insure, as well as the relevant terms of their insurance (reinsurance) (hereinafter referred to as the "Terms").

In particular, war risks include the following insurance risks that may arise on the territory of Ukraine:

  1. military conflict, including war or armed conflict, armed aggression, hostilities, mass riots;
  2. violent change or overthrow of the constitutional order or seizure of state power;
  3. acts of terrorism and/or sabotage;
  4. occupation, annexation.

 

Political risks include:

  1. compulsory alienation of property/seizure of property of a business entity/private entrepreneur (deprivation of property rights) by the state authorities of Ukraine;
  2. unreasonable (illegal) revocation of a license by a market regulator or forced termination (suspension) of a business entity's activities by state authorities, as established by a court decision that has entered into force, unless such termination is caused by the business entity's failure to comply with the requirements of the law;
  3. failure or refusal of the state to fulfill its obligations under the legislation, strategic or program documents approved in accordance with the procedure established by law, and/or an investment agreement, provided that the business entity has the right to demand fulfillment of such obligations;
  4. imposition by the state of a ban (payment embargo, moratorium) on payments;
  5. currency inconvertability or prohibition of transfer abroad by a business entity, except as provided by law.

The Terms apply only to insurance (reinsurance) of loans of Ukrainian business entities, related to investments in the creation of facilities and infrastructure necessary for the development of the processing industry and export of goods (works, services) of Ukrainian origin, as well as direct investments in Ukraine.

Pursuant to the Terms, ECA provides insurance of investments, insurance of investment loans and reinsurance of risks on the basis of relevant insurance and reinsurance agreements.

An investment insurance agreement may be concluded subject to the following requirements:

  1. the investment object is located in the territory of Ukraine, except for the territories that are occupied or in the combat zone as of the date of the agreement (in accordance with the relevant order of the Ministry of Reintegration of the Temporarily Occupied Territories of Ukraine);
  2. the purpose of direct investment is to create facilities and infrastructure necessary for the development of the processing industry and export of goods (works, services) of Ukrainian origin;
  3. the goods (works, services) to be exported as a result of the investment meet the requirements of Article 8 of the Law of Ukraine "On Financial Mechanisms for Stimulating Export Activity", i.e. are of Ukrainian origin and do not fall within the list of exceptions specified in this Article (e.g. crude oil, agglomerated cork, gray ambergris).

Most insurance terms can be agreed upon by the parties in the agreement, but certain restrictions apply: for example, the insured amount cannot exceed the value of the direct investment or the amount of dividends expected by the insured from such investment.

Similar requirements apply to the investment loan insurance agreement, namely:

  1. the provision of loans to Ukrainian business entities must be related to investments in the creation of facilities and infrastructure necessary for the development of the processing industry and export of goods (works, services) of Ukrainian origin;
  2. the facilities and infrastructure for which the investment loan is granted must be located on the territory of Ukraine, except for the territories that are occupied or in the combat zone as of the date of the agreement (in accordance with the relevant order of the Ministry of Reintegration of the Temporarily Occupied Territories of Ukraine);
  3. the goods (works, services) to be exported as a result of the investment must meet the requirements of Article 8 of the Law of Ukraine "On Financial Mechanisms for Stimulating Export Activity".

Under the investment loan insurance agreement a bank that has granted or intends to grant an investment loan to the borrower acts as an insured. The term of the agreement may not exceed the term of the loan.

As in the case of an investment insurance agreement, the parties may agree on other insurance terms in the relevant agreement between them, but the restrictions set forth in the Terms should be taken into account. For example, the insured amount is set within the amount of the insured's probable losses, which is determined based on the amount of the debt limit or loan principal based on the terms of the loan agreement and subject to the requirements of the law. The insured amount may not exceed 100% of the debt limit or loan principal.

With regard to reinsurance, the Terms provide for the right of ECA to enter into reinsurance agreements (inward and outward) under investment insurance agreements or investment loan insurance agreements, subject to the requirements of the law:

  1. with non-resident insurers and foreign ECA that are members of the International Union of Credit and Investment Insurers, except for foreign ECA that are residents of the russian federation and the Republic of Belarus;
  2. with the participation of reinsurance brokers of Ukraine or non-resident reinsurance brokers;
  3. through obligatory and/or facultative reinsurance of such risks.

For more details on the Terms and procedure for insurance (reinsurance) of war and political risks in the course of Export Credit Agency's activities, please contact our Banking & Finance Practice (https://www.integrites.com/practices/banking-and-finance/)