ISLAMABAD, Dec 5: Pakistan’s insurance sector is expected to soon undergo large-scale restructuring through mergers, acquisitions and closures in view of emerging market conditions and increased capital and solvency requirements.

Under the Insurance Ordinance 2000 promulgated last year and now being implemented by the Securities and Exchange Commission of Pakistan (SECP) required a strong, financially viable and professionally run insurance sector in the country, SECP sources told Dawn.

Professionals in the public and private sector insurance companies believed that weak companies were already under the threat of being wiped out under the Insurance Ordinance but the recent developments in the post-September 11 situation had accelerated this process.

The SECP sources said that the task force on insurance sector, constituted by the SECP, in its recent report also called for long term solutions through enhanced retention and reinsurance capacities of the domestic insurance sector.

The report said: “With the increased capital and solvency requirements laid down for the companies, bigger and stronger companies will remain in the market. Mergers and acquisitions will take place and the companies which will not be able to fulfil the requirements, will cease to operate.” Recently, the Securities and Exchange Commission of Pakistan (SECP) had directed local non-life insurance companies to raise their paid up capital to a minimum of Rs50 million by December 31, 2002 and to Rs80 million by 2004. Mandatory credit rating of the local insurance companies was another step towards that end, SECP officials said.

Of the total around 52 insurance companies, about 35 insurance companies were currently maintaining paid up capital of below Rs50 million. About 10 per cent companies in the local insurance industry are underwriting over 80 per cent of total business in Pakistan.

Under Insurance Ordinance 2000 promulgated last year, the paid-up capital is required to be raised up to Rs200 million in a phased manner. The move was part of a detailed action plan in collaboration with Insurance Association of Pakistan (IAP) and Institute of Chartered Accountants of Pakistan (ICAP) to facilitate these 35 companies to comply with statutory provisions.

SECP officials said that this would ensure maximum insurance payments to genuine insurers and reduce complaints received from the general public against non-payment of claims by the insurance companies.