ISLAMABAD, Sept 20: Securities and Exchange Commission of Pakistan has forbidden four insurance companies to underwrite fresh insurance business.

The directive, official source stated here on Friday, came in the wake of these companies being unable to comply with an earlier directive of insurance regulator to get their claims paying ability/financial strength rated by recognized rating agencies in Pakistan.

In order to watch and protect the interests of the insured/policy holders, he said, SEC had been endeavouring to enhance the capacity of the local insurance industry to honour claims made on it.

Nevertheless, it often received complaints from the public against non-payment of claims by the insurance companies. On investigation, it was usually observed that a company’s unwillingness or inability to pay the claim was due to lack of sufficient reinsurance arrangements.

The SEC, consequently, issued a directive in October 2001, to all insurance companies operating in Pakistan to make sound reinsurance arrangements with at least “A” rated international re-insurers.

Detailed scrutiny of the treaty arrangements filed by the insurance companies revealed that 17 out of a total of 48 companies were unable to make arrangements with “A” rated international re-insurers, as was required by the SEC.

The SEC offered to them the second option: These companies were asked last April to get their claims paying capacity rated by recognized rating agencies functioning within the country.

Out of 17, seven companies were issued show-cause notices. This resulted in three companies getting the claim paying ability rated. This left four companies which apparently did not make serious efforts to get their rating done or even provide necessary information about their company to the rating agencies.

In exercise of the powers conferred on it under Section 63 of the Insurance Ordinance 2000, the SEC on Friday directed these four companies to stop fresh underwriting of insurance business.

The SEC source, nevertheless, expressed satisfaction over the fact that almost 85 per cent of the insurance business in Pakistan was without those companies, which have made 100 per cent arrangements with the international re-insurers, who are rated “A” and above, by the international rating agencies. “The SEC feels that these can serve interest of the general public satisfactorily,” he remarked.