Pakistan's insurance regulator has circulated draft insurance laws that could significantly transform the local regime by aligning it with the International Association of Insurance Supervisors' core principles for the industry.
The rules, up for consultation until late January, aim to turn Pakistan's supervisory regime of insurers towards a risk-based one, and to implement a risk-based capital model. The Securities and Exchange Commission of Pakistan (SECP) has convened roundtables with industry participants and trade associations across Pakistan to develop the regime.
The bill's preamble speaks of "a gradual shift towards adaption [sic] of international best practices related to insurance [and] facilitating and promoting development of the insurance sector".
The SECP would enjoy extensive powers and separately has already stated its intention to inspect more underwriters this year than ever before.
The rules introduce industry-wide guarantee funds to deal with insolvencies, propose methods to oversee local and foreign reinsurers, to supervise re/takaful providers, and set out rules specifically for microinsurers.
The SECP wins the power to create, and compel all life underwriters to contribute to, a guarantee fund to pay policy benefits in instances of insolvency.
It can also refuse insurers seeking permission to dismiss their 'appointed actuaries'. This is an influential internal role each underwriter must populate, with an individual who reports to the commission annually on the insurer's financial condition; gives advice on the equitable apportionment of revenues / expenses between funds and policyholders; certifies if policy terms are workable; and when resigning explains to the SECP the reasons.
The rules also grant the SECP power to introduce risk-based capital and solvency requirements, and methods to calculate what capital is adequate for the industry to hold. In calculating solvency positions, the same rules spare no detail in spelling out the limits of admissibility of assets.
The same rules also stipulate minimum capital requirements for microinsurers, linked to how many provinces they work in, and give the SECP power to stipulate what proportion of their funds they must invest in local debt, and which asset classes are off limits as investments.
Foreign reinsurers wishing to conduct business in Pakistan face extensive demands to disclose information and to maintain minimum credit ratings.
Where the public interest is served, the watchdog can even "prescribe the minimum quota of a specific class or category of insurance business to be underwritten by insurers" and can stipulate development deadlines, terms and benefits for such policies.
The draft laws can be found here: https://www.secp.gov.pk/document/draft-insurance-bill-2016-eliciting-public-comments/?wpdmdl=22595