Pakistan: Regulator Recommends Major Changes to Insurance Regulatory Framework
By Jimmy John | 05 Mar 2025
The insurance regulator in Pakistan has proposed substantial changes to the regulatory framework governing the insurance industry. The recommendations aim to enhance the insurance sector’s risk absorption capacity, bolster financial stability, and provide greater protection for policyholders.
The Securities and Exchange Commission of Pakistan (SECP) policy board has approved major amendments to several key regulations, including the Insurance Rules, 2017, the Insurance Accounting Regulations, 2017, and the General Takaful Accounting Regulations, 2019.
According to a press release, the amendments are designed to strengthen the insurance regulatory framework by improving industry resilience, tackling core sectoral challenges, diversifying capital sources, and streamlining reporting requirements. These changes are intended to modernize the regulatory environment and promote a more robust insurance market.
Increased Capital Requirements
One of the most significant amendments concerns an increase in the minimum capital requirements for both life and non-life insurance companies.
Under the revised framework, non-life insurers will be required to maintain a minimum paid-up capital of PKR2 billion (approximately $7.2 million). Life insurers, on the other hand, must meet a higher threshold of PKR3 billion. The implementation of these new capital requirements will be phased in, with a timeline extending until 2030, providing companies with ample time to adjust.
Subordinated Debt and Solvency
Another key amendment introduces an enabling framework that will allow insurance companies to issue subordinated debt instruments. This amendment also defines the treatment of such debt for solvency purposes.
This reform offers insurance companies greater financial flexibility by providing access to alternative capital-raising avenues. It strengthens their creditworthiness and allows them to maintain additional regulatory capital. By expanding access to additional capital, the amendment is designed to reinforce the long-term sustainability and resilience of the insurance sector, while also aligning with the SECP’s planned implementation of a risk-based solvency regime.
Tax and Security Amendments
Further amendments address the standardization of recording advance and withholding tax in the financial statements of life insurance companies. This ensures greater consistency and transparency in financial reporting.
Additionally, the amendments respond to concerns raised by the life insurance industry regarding holding a specified percentage of government securities against advance/withholding tax. The requirement has been relaxed, providing some relief to life insurers. These adjustments show the regulator’s willingness to work with the industry to create beneficial solutions.
This comprehensive set of amendments reflects the SECP’s commitment to fostering a stable and robust insurance sector in Pakistan. The changes are expected to have a significant impact on the industry, leading to greater financial strength and enhanced protections for policyholders.
