SECP proposes reforms to strengthen insurance guarantees
- Framework covers bid and performance bonds, mobilisation advance guarantees, and customs guarantees issued by insurers
The SECP has proposed reforms to enhance the safety, clarity, and reliability of insurance bonds and guarantees, particularly for construction and government contracts, aiming to reduce ambiguity and improve claim settlements.
- Proposed reforms for insurance bonds and guarantees.
- Stronger solvency, risk-based pricing, and reinsurance requirements.
- Classifying credit and suretyship insurance as restricted.
The Securities and Exchange Commission of Pakistan (SECP) has proposed reforms to make insurance bonds and guarantees safer, clearer and more reliable, particularly for construction projects, government contracts, public procurement and trade.
The proposed framework covers bid and performance bonds, mobilisation advance guarantees and customs guarantees issued by insurers. These instruments provide financial protection to government departments, project owners and commercial entities if a contractor or business fails to meet its contractual obligations.
The reforms propose clearer conditional and unconditional guarantee contracts, stronger solvency and reserving requirements, risk-based pricing, mandatory indemnification agreements and adequate reinsurance arrangements. They are aimed at reducing contractual ambiguity, delays in claim settlement and prolonged litigation.
The SECP has also proposed classifying credit and suretyship insurance as a restricted class of insurance business. This would enable closer scrutiny of insurers and help ensure that only financially capable companies undertake such business.
SECP Chairman Dr Kabir Ahmed Sidhu said the reforms would strengthen risk management and insurers’ financial capacity, improve contractual clarity and enhance public confidence in insurance-backed bonds and guarantees.
The SECP has invited insurers, contractors, businesses, government entities and other stakeholders to submit comments on the Consultation Paper, which is available on its website.
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