Solvency and pricing mandates spark industry alarm
Staff Report
ISLAMABAD: Several top insurance companies have mounted a formal challenge to the Securities and Exchange Commission of Pakistan’s proposed amendments to the Credit and Suretyship Rules, 2018.
They describe S.R.O. 1290(I)/2025 as having excessive and legally questionable requirements in solvency, pricing, reinsurance, and claims reserving.
The draft amendment mandates that insurers issuing guarantees maintain a solvency margin 1.5 times higher than the standard under Section 36 of the Insurance Ordinance or equal to the minimum paid-up capital whichever is higher meaning that insurers to do guarantee business must have solvency of Rs.500 million which is proposed to increase to Rs.2 billion. This is totally absurd requirement to maintain such high level of solvency. Industry leaders warn that such measures impose an overwhelming financial burden, breach uniform solvency principles, and exceed SECP’s regulatory authority.
The proposed rules also impose actuarial pricing standards and compulsory proportional treaty reinsurance. Insurers argue that pricing and reinsurance decisions are core governance functions. Section 41 of the Insurance Ordinance specifically mandates the directors to decide reinsurance arrangements which views are also held by Justice Kayani in his recent judgment. Regulatory interference threatens operational autonomy, discouraging innovation and market growth.
A third point of contention is the replacement of Rule 7, which requires full reserving for all reported claims under unconditional guarantees, including cases under litigation. Insurers stress that no other insurance segment faces such obligations and claim the measure lacks a legal basis. Mandatory full reserving, they say, could tie up capital unnecessarily and reduce appetite for surety products.
Industry representatives warned that the guarantee business plays a vital economic role. Bank guarantees remain expensive and collateral-heavy, accessible only to large companies, while insurance guarantees enable broader participation. “We have submitted our objections for SECP’s review. This appears to be another attempt that could severely impact the guarantee business. Overly stringent rules may squeeze smaller players and shrink market access,” said an industry representative.
Despite these objections, insurers expressed willingness to engage in dialogue and urged SECP to revise the amendments in line with existing laws and practical market realities. SECP has not formally responded yet, but consultations are expected in the coming weeks.
