should also be allowed to arrest foreign exchange outflow
By AMANULLAH BASHAR
Sep 27 - Oct 03, 1999
Due to non-existence of the private sector in re-insurance business,
the foreign exchange outflow on account of reinsurance comes to billions of dollars since
the inception of Pakistan.
Since the vacuum is never tolerated by the nature, the gap is bridged
by the foreign reinsurance companies taking away atleast 20 per cent of the total premium
paid for the reinsurance cover.
Currently, the Pakistan Insurance Corporation (PIC) is the sole public
sector organization operating in the re-insurance business. Under the existing insurance
act, PIC has a compulsory re-insurance quota of 20 per cent which is mandatory while
another 35 per cent business is also offered to PIC. The PIC has the discretion to accept
this offer in accordance to its convenience. Around 40-50 per cent surplus business is
however grabbed by the foreign companies.
According to informed sources, the IMF has provided guidelines to the
government for framing a fresh Insurance Act to replace the existing one. It is feared
that the proposed act would adversely affect not only he reinsurance sector but the
current size of the government revenue generated through this business. The proposed act
would provide freedom to the multinational companies to pass on the reinsurance business
to foreign companies of their choice. This would consequently deprive the government of
Federal Insurance Fee, 3 per cent Central Excise Duty plus other taxes on profits.
M.I. Ansari, the Managing Director of AGRO General Insurance Company,
while giving his expert opinion on the proposed act, told PAGE that in order to plug the
draining out of the foreign exchange on account of reinsurance, private sector in
collaboration with foreign partners be allowed to enter the reinsurance business in
Pakistan. The business operation of PIC be based purely on commercial system instead of
operating under the cover of quota system which creates a monopoly status for PIC. Ansari
was of the view that the proposed insurance act should not be allowed to disturb the
Following are the salient features of both the existing and proposed
insurance acts for the benefit of the readers:
EXISTING ACT 1938
Provisions relating to reinsurance and insurances abroad.
No insurer shall reinsure outside Pakistan any insurance business or
any part thereof underwritten by him in Pakistan which is in excess of its treaty
re-insurance arrangement unless a certificate has been obtained from the Controller to the
effect that such excess cannot be placed within Pakistan: Provided that nothing contained
in this sub-section shall be deemed to prohibit reinsurance by the Pakistan Insurance
A re-insurance arrangement shall not be deemed to be a treaty
reinsurance arrangement if such arrangement operates in a casual manner and in determining
whether a particular re-insurance arrangement is a treaty reinsurance arrangement or not,
the decision of the Controller of Insurance shall be final.
For the purposes of this sub-section a reinsurance arrangement in
respect of life insurance business entered into by an insurer domiciled elsewhere than
Pakistan with his head office shall be deemed to be treaty reinsurance arrangement to the
extent determined by the Controller of Insurance.
No person shall insure outside Pakistan any risk or any part thereof in
respect of any property or interests in Pakistan unless a certificate has been obtained
from the Controller to the effect that the risk in question cannot be insured in Pakistan.
PROPOSED ACT. 1999
Under the proposed act, 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
insurers), formed on reasonable ground, 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, in the prescribed manner, to Pakistan
Insurance Regulatory Authority (PIRA) not less than one month prior to the coming into
effect or as soon as practicable thereafter, of any treaty re-insurance arrangement
entered into by the insurer as cedant, features of that reinsurance arrangement in respect
of his business in Pakistan and such other information about the re-insurance treaty as
may be prescribed.
PIRA may, at any time and after giving the insurer an opportunity of
being heard, for reasons to be recorded in writing, direct the insurer to make such
modifications in his re-insurance arrangements as PIRA may specify. For the purpose of
this section "reinsurance" includes "retrocession".