Allianz EFU Health Insurance Company

Establishment of health insurance company

From YOUSAF RAFIQ
Special Correspondent, Islamabad
Nov 15 - 21, 1999

M/s Allianz AG, Germany and EFU Group have shown interest to establish a joint venture in insurance business. The proposed company would be established as "Allianz EFU Health Insurance Company", an unlisted public limited concern with authorized capital of US $10 million. The paid-up capital of the proposed company would be US $6 million. After the agreement EFU will discontinue its existing health insurance scheme. A large potential exists in the health insurance sector of Pakistan that would cover government corporations, private sector companies and about three million individuals. The proposed company will cater to the requirements of insurance in health sector that has never been done in the past.

The sponsors have proposed 80:20 foreign/local equity holding in the joint venture which would be diluted to 51:49. Under the policy for investment in the service sector, foreign investors are allowed to hold 100 per cent foreign equity subject to the condition that the repatriation of profits will be restricted to a maximum of 60 per cent of total equity or profits and it will be mandatory to meet the condition that minimum 40 per cent of the equity is held by Pakistani investors (including sale of shares in stock exchange) within two years. The sponsors have requested for exemption from the applicability of this rule for a period of 5 years. After the expiry of this period, the ratio would be brought to 51:49, that would be in line with the government policy. However, the sponsors have assured the government officials that they would not repatriate the profits etc from the country during this transition period of 5 years.

According to the Department of Insurance, the company would be required to be registered under the Insurance Act, 1938, the business like "Health Insurance" comes under the definition of "Miscellaneous Insurance Business" and falls under the category of Non-life/General Insurance and therefore, the proposed company will be registered under the aforesaid Act. In this connection, however, the Department of Insurance has drawn attention to a decision of the Economic Coordination Committee of the Cabinet (ECC) in October 1993 in respect of the employment of foreign capital allowed in the case of insurance business in the private sector: (i) Foreign Insurance Companies desirous of operating in Pakistan shall be entitled to hold 51 per cent shares; (ii) Foreign Companies should be required to bring in a minimum amount of US 42 million in foreign exchange and raise an equivalent amount from the local market; (iii) there should be no restrictions on the number of branches; and (iv) there should be no restrictions on the foreign insurance companies as to whom they should employ. They should be given national treatment in extending all the facilities as enjoyed by local companies.

Sources say that the proposal needs to be encouraged keeping in view the importance of health care and need of such a comprehensive health insurance cover, to be provided by the proposed local group and the fact that the Allianz of Germany, being the largest insurers of the world, (particularly in the field of health insurance), as a joint venture partner are willing to invest an amount of US $4.8 million, besides bringing the technical as well as professional expertise to Pakistan. Further, the Department of Insurance, have no objection to the creation of the proposed Company, subject to the condition that the foreign sponsor would not repatriate the profits/surplus funds outside Pakistan for a period of five years, from the date of commencement of commercial operations and the local partner raise its equity to 49 percent, during the aforesaid period.

Sources say that the Board of Investment has proposed that exemption from the applicability of rule regarding holding mandatory 40 per cent equity for a period of five years may be granted to the sponsors as a special case. After the expiry of this period, the ratio would be brought to 51:49, which would be in line with the government policy. However, during this transition period of 5 years they would not be allowed to repatriate the profits etc from the country.