Pakistan:Regulator proposes hikes in required minimum paidup capital for insurers

The Securities and Exchange Commission of Pakistan (SECP) yesterday proposed to increase the minimum paid-up capital requirement for insurance companies as part of its "Insured Pakistan" initiative.

The SECP proposes to increase the current required minimum capital as follows:

For new insurers, the new required minimum capital takes effect immediately. For existing insurers, the proposed increase will be implemented in phases over four years i.e. from 2025 to 2028, as follows:

Year	Required Minimum Capital (PKR)
	Life insurer*	Non-life insurer
2025	1,000m	800m
2026	1,500m	1,100m
2027	2,000m	1,400m
2028	3,000m	2,000m
* includes life digital-only insurers underwriting life insurance saving products The required minimum capital of insurers was last raised in 2017.

The higher capital requirement aims to strengthen the insurance industry and as a result, provide better protection for policyholders. The key objectives behind this proposal are to ensure:

• Availability of adequate equity to cover the current risk environment

• Promotion of financial stability and soundness in the insurance sector

• Protection of policyholder’s interests

• Enhancement of local risk absorption capacity

SECP says that implementation of proposed increase will strengthen the ability of local insurers to underwrite larger risks and retain sizeable local market share, thereby reducing the outflow of foreign exchange in the form of reinsurance premiums. It will also safeguard the stability and soundness of the insurance sector, and increase the overall net worth of the companies.

The move will indirectly mandate the insurers to either raise their paidup capital or pursue mergers and acquisitions.

In a concept paper on minimum paidup capital requirements, SECP says that certain players dominate the market by having a large share in industry premiums. In the life sector, out of 12 players, six players command 98% of the total life industry premium. In the non-life sector, similar fragmentation is observed, where out of 30 players, 15 players command a 95% share in the total non-life industry premium.

The proposed revisions will supplement existing initiatives towards enhancement of industry’s risk absorption capacity including the Risk-Based Solvency Regime and IFRS 17 implementation.

Microinsurers

For a microinsurer and digital-only insurer, mainly involved in offering personal line products, the existing minimum capital requirements are to continue, as set out below:

Type of microinsurer	Minimum paidup capital requirement (PKR)
Life microinsurer	150m
Non-life microinsurer	80m
Life digital-only insurer	250m
Non-life digital-only insurer	100m

The concept paper and proposed revisions to insurance rules are in line with the “Insured Pakistan Vision” encapsulated in the SECP’s five-year strategic plan.

To access the concept paper, please click on this link.