SECP Constitutes Working Group to develop Risk Based Capital Regime for Insurance Sector

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has constituted a working group of actuaries for the development of Risk Based Capital Regime in Pakistan.

The group members possess local as well as diversified international experience, said a press release issued here.

An insurance company during the normal course of operations is not only exposed to risk in relation to insurance contracts that it underwrites, but also to a variety of other risks including market risk, liquidity risk, credit risk, operational risk etc.

Currently, compliance based Paid up Capital requirements and solvency requirements are levied on insurance companies.

The solvency regime does take into account to some extent, liquidity risk, credit risk, market risk, insurance risk etc. in calculation of solvency through admissibility of assets test, however, it does not quantify the levels of different risks borne by the insurers and therefore does not deliberate on the adequacy of capital keeping in view the risks undertaken.

Majority of international jurisdictions have already shifted or have commenced work to move towards RBC Regime for their insurance sector, few of these jurisdictions includes, Malaysia, China, India, Sri Lanka, Hong Kong, Turkey etc.

The SECP believes that for RBC to be implemented, the most important part would be quantification of the different risks faced by the insurance companies including their correlation/ interconnectedness in relation to the size and complexity of an insurer.

Introduction of RBC would provide true reflection of risks taken by insurance companies and would result in a more disciplined and financially resilient insurance sector in Pakistan.