SECP raises insurers’ minimum paid-up capital requirement

KARACHI: The Securities and Exchange Commission of Pakistan (SECP) has increased the minimum paid-up capital requirement for life insurance companies and non-life insurance companies to Rs700 million and Rs500 million, respectively by 2017.
According to a notification issued Tuesday, life insurers are required to increase their paid-up capital to a minimum level of Rs500 by December 31, 2015; to Rs550 million by end June and Rs600 million by end December 2016; to Rs650 million by end June and to Rs700 million by end December 2017.
Similarly, non-life insurers are required to increase their paid-up capital to a minimum level of Rs300 by December 31, 2015; to Rs350 million by end June and Rs400 million by end December 2016; to Rs450 million by end June and to Rs500 million by end December 2017.
The Securities and Exchange Commission of Pakistan had directed non-life insurance companies in 2007 to gradually increase their paid-up capital from Rs80 million to Rs300 million by the end of 2011.
However, the capital of 40 companies, operating in the country at the end of 2012, varied from company to company ranging from Rs250 million to Rs500 million.
When the capital requirement was enhanced at the end of 2007, Rs300 million was equivalent to approximately $5.0 million. Given the depreciation of the rupee against the dollar, however, the same amount was equivalent to less than $3.0 million by the end of 2012, a recent Securities and Exchange Commission of Pakistan report noted.
Paid-up capital forms the basis of financial strength for any insurance company by allowing better risk management and market confidence.
Out of the total premium income of Rs57 billion for 2012 – the last year for which complete data is available – the market share held by the top three players in the non-life segment was 60 percent. These companies were EFU General Insurance, Adamjee Insurance and Jubilee General Insurance.
If the next two largest players are also included, their collective share in the total premium income increases eight percentage points to 68 percent.
Emphasising that 65 percent of companies in the non-life insurance industry hold a market share of only 18 percent, the report said these insurers generally rely on the smaller market share and do not have financial resources to develop better quality branch network and distribution channels.
The Securities and Exchange Commission of Pakistan has also recommended that the restriction imposed by the State Bank of Pakistan (SBP) on the issuance of dollar-denominated insurance policies should be reviewed.
“The non-life insurers face immense administrative issues while providing insurance cover to the clients involving foreign direct investment, which requires insurance policies be issued in dollar denomination,” it said, noting that the issue should be taken up jointly by the Securities and Exchange Commission of Pakistan and the State Bank of Pakistan .