SECP in­creases min­i­mum paid-up cap­i­tal re­quire­ment for in­sur­ers

The Pak Banker - - 6BUSINESS -

The Se­cu­ri­ties and Ex­change Com­mis­sion of Pak­istan (SECP), with the ap­proval of its Pol­icy Board, has in­creased the min­i­mum paid up cap­i­tal re­quire­ment for in­sur­ance com­pa­nies.

The Pol­icy Board has ap­proved an amend­ment to the Se­cu­ri­ties and Ex­change Com­mis­sion (In­sur­ance) Rules, 2002 whereby the min­i­mum paid up cap­i­tal for both non-life and life in­sur­ance com­pa­nies has been in­creased by an amount of Rs200 mil­lion.

A new rule 9 has been in­serted in the said rules un­der which the base­line paid-up cap­i­tal re­quire­ment for non-life and life in­sur­ance com­pa­nies have been pre­scribed as Rs500 mil­lion and Rs700 mil­lion re­spec­tively. Fur­ther, the amount of min­i­mum paid up cap­i­tal will be net off any dis­count of­fered on is­sue of shares. These new cap­i­tal re­quire­ments would be ap­plied in a phased man­ner and the ex­ist­ing in­sur­ance com­pa­nies would be al­lowed a pe­riod of two years, i.e. till De­cem­ber 31, 2017 to meet the said re­quire­ment.

At the time of en­act­ment of the In­sur­ance Or­di­nance, 2000, the min­i­mum paid-up cap­i­tal re­quire­ments for non-life and life in­sur­ance com­pa­nies were Rs80 mil­lion and Rs150 mil­lion re­spec­tively. In the year 2007, the paid-up cap­i­tal re­quire­ments for non-life and life in­sur­ance com­pa­nies were in­creased to Rs300 mil­lion and 500 mil­lion re­spec­tively in a phased man­ner.

In 2012, the SECP formed an "In­sur­ance In­dus­try Re­forms Com­mit­tee" (IIRC) to eval­u­ate the chal­lenges faced by the in­sur­ance in­dus­try of Pak­istan and also to rec­om­mend ap­pro­pri­ate reg­u­la­tory re­forms that best suit the growth of the in­dus­try. The said com­mit­tee, in ad­di­tion to rec­om­mend­ing few other amend­ments to the reg­u­la­tory frame­work, also rec­om­mended in­creas­ing the min­i­mum paid-up cap­i­tal re­quire- ments for the in­sur­ance com­pa­nies.

The paid-up cap­i­tal has been in­creased to im­prove ca­pac­ity of the lo­cal in­sur­ers to un­der­write larger risks and re­tain size­able share thereof. This would in­di­rectly help to check out­flow of the pre­cious for­eign ex­change of the coun­try that is go­ing abroad in the shape of rein­sur­ance pre­mium.

More­over, an in­crease in the in­sur­ers' paidup cap­i­tal would ul­ti­mately con­trib­ute to­wards bet­ter sol­vency po­si­tion of the in­sur­ers. Cap­i­tal serves to re­duce the like­li­hood of fail­ure due to sig­nif­i­cantly ad­verse losses in­curred by the in­surer over a de­fined pe­riod, in­clud­ing de­creases in the value of the as­sets and/or in­creases in the obli­ga­tions of the in­surer, and to re­duce the mag­ni­tude of losses to pol­i­cy­hold­ers in the event that the in­surer fails. From macro-eco­nomic per­spec­tive, re­quir­ing in­sur­ers to main­tain ad­e­quate and ap­pro­pri­ate cap­i­tal en­hances the safety and sound­ness of the in­sur­ance sec­tor and the fi­nan­cial sys­tem as a whole.

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