Law in offing to bring reinsurance brokers into SECP's ambit

The Securities and Exchange Commission of Pakistan (SECP) has decided to explicitly bring reinsurance brokers into the regulatory ambit of the commission to effectively develop the reinsurance market in Pakistan. Sources toldBusiness Recorder here on Wednesday that the SECP has proposed a new section under the draft Insurance Bill, 2016 for this purpose.
The Insurance Ordinance, 2000 under section 102 thereof, only allowed regulation of direct insurance brokers. Accordingly, the Draft Insurance Bill, 2016 proposes to explicitly bring reinsurance brokers into the regulatory ambit of the SECP. Resultantly, reinsurance brokers undertaking business in Pakistan shall be registered and any probable conflict of interest would be removed/ minimised along with submission of periodic statements with the SECP.
In order to effectively develop the reinsurance market in Pakistan, the Draft Insurance Bill, 2016 aims at introduction of substantial provisions providing the criteria for registration of a local reinsurer along with paid-up capital, statutory deposit, solvency requirements, etc. The Draft Insurance Bill, 2016 also proposes requirements for authorisation of foreign reinsurers engaging in reinsurance business in Pakistan, sources added.
According to the draft Bill, no person shall carry out or hold himself as reinsurer or carry out activities in the nature of reinsurance business in Pakistan unless he holds valid registration or authorisation, as the case may be, with the Commission and a licence has been granted to it to undertake reinsurance business, exclusively in Pakistan. A registered insurer carrying on insurance business shall be eligible to undertake reinsurance business, exclusively in Pakistan, provided that it forms a separate legal entity for the said purposes.
Provided that nothing in this sub-section shall prevent insurers registered under this Act to undertake inward facultative reinsurance business.
The draft bill further states that the federal government may, by notification in the official gazette, direct that every insurer shall offer to reinsure with the company such proportion as is determined on such basis as may be specified in such notification of its direct non-life insurance business, which is in excess of the aggregate of the insurer's net retention; the sum insured required to be reinsured; and the sum insured, otherwise, reinsured with the company or with any other insurer in Pakistan, but excluding any part reinsured outside Pakistan.
The reinsurance set out shall for the purposes of this Ordinance constitute a treaty contract of reinsurance between the insurer and the company, operating on a risks attaching basis. The federal government may, by notification in the official gazette and on reasonable grounds, exempt any insurer and the company from the preceding requirements of this section, it added.
The draft further says that the requirement to affect and maintain reinsurance arrangements. An insurer shall affect and shall, at all times, maintain such reinsurance arrangements as are, in the opinion of the directors (or such other person or body responsible for conducting the management and business of the insurer), formed on reasonable grounds, having regard to the exposures of the insurer in respect of individual contracts accepted and in respect of aggregate losses arising out of individual events, adequate to ensure continuing compliance by the insurer with the provisions of this Act relating to solvency.
Every insurer shall submit to the Commission, in the manner prescribed by the Commission and not less than one month prior to the coming into effect, or as soon as practicable thereafter, of any treaty reinsurance arrangement entered into by the insurer as cedant, such features of that reinsurance arrangement as may be prescribed by the Commission, it added.
The law added that all reinsurance arrangements already in existence, at the date of coming into effect of this part, shall remain intact and valid until their expiry, which, upon expiry, shall be required to be affected with only the person eligible to transact reinsurance business in Pakistan.