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Enhancing the Non-Life Insurance Retention in Pakistan

Regulatory Requirements in Pakistan. An insurer is required to maintain reinsurance arrangements for its business. The board of directors of the insurer must be satisfied that the reinsurance arrangements of the insurer are reasonable and comply with the regulatory requirements (section 41(1) if ins

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Enhancing the Non-Life Insurance Retention in Pakistan

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    1. Enhancing the Non-Life Insurance Retention in Pakistan Thursday August 2, 2007 Karachi

    2. Regulatory Requirements in Pakistan An insurer is required to maintain reinsurance arrangements for its business. The board of directors of the insurer must be satisfied that the reinsurance arrangements of the insurer are reasonable and comply with the regulatory requirements (section 41(1) if insurance ordinance), For treaty reinsurance, Non-Life Insurers are required to offer at least 35% of their treaty reinsurance to Pakistan Reinsurance Company Ltd (PRCL). PRCL can accept whatever percentage they would like to being phased out!

    3. Regulatory Requirements in Pakistan (contd) For treaty reinsurance, at least 50% must be placed with A rated reinsurer and remaining 50% can be placed with BBB rated reinsurers. The rating requirement does not apply to PRCL, Non-Life Insurers can also place reinsurance outside Pakistan on facultative basis subject to permission of SECP. SECP can grant permission if: The insurance is in excess of treaty and can not be reasonably placed in Pakistan, For protecting the treaty, Special nature risk for which no treaty is available, Any other special reason.

    4. Regulatory Requirements in Pakistan (contd) The insurers are required to submit full details of their reinsurance arrangements to SECP (section 41(2&3) of insurance ordinance), SECP has power to direct any insurer to make such modifications in its reinsurance arrangement as SECP may specify on reasonable grounds and after hearing the insurer (section 41(4) of the insurance ordinance),

    5. Non-Life Business Retained in Pakistan in 2006 Top 20 Non-Life companies (other than NIC) have 95% market share, These top 20 companies retained around 70% of the business written by them in 2006, From 30% reinsured business, around 5% is retained in Pakistan through PRCL, So, approximately 75% business of these top 20 companies retained in Pakistan and 25% went outside Pakistan in 2006.

    6. PRCL in 2006 (Amount in PKR billion) Earned Premium Net Premium Retention (%) Treaty 1.60 1.12 70% Facultative 2.75 0.30 11% Total 4.35 1.42 33%

    7. Ways to increase retention in Pakistan Strengthening PRCL: Financial strength to retain more within Pakistan, More efficiency to increase the confidence level of insurance companies. Use of NICLs Financial Strength: Support to PRCL, Facultative reinsurance to private insurers, Window General Re-Takaful

    8. Ways to increase retention in Pakistan (contd) Encouraging New Reinsurance Companies: Through separate reinsurance rules allowing composite reinsurance, window re-takaful, different paid up capital requirement etc, Some regulatory supports, Macro-Supervision by SECP Year-wise analysis of individual companies, Guidelines for facultative abroad with provision of post-audit instead of prior permission in each case, Support from the Industry

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