ISLAMABAD, April 2: The Securities and Exchange Commission of Pakistan (SECP) has prohibited the non-life insurance companies from offering more than 8 per cent as the rate of return on the unit-related policies to lure customers.

This category of policies, Syed Etrat Rizvi, SECP Commissioner incharge of the Insurance Division told Dawn here on Friday, was being offered in Pakistan at present by a few general insurance companies.

These policies, he explained, operated like open-end mutual funds in which the price of a unit was determined by the rate of return a company might obtain from investment of the funds obtained by the sale of these units.

As there was intense competition among insurance companies for the sale of these policies, they were advertising the rates of returns which appeared to be very inflated and unrealistic in the present scenario of reduced rates of return on bank deposits, national savings schemes etc.

It was likely that the investors might find that the value of their units had not increased in accordance with the expectations raised by the insurance companies.

The SECP had capped the maximum rate of interests these companies might offer in order to save the prospective investors from committing their funds on expectations that might be difficult for the insurance companies to fulfil, he added.

In reply to a question, he said this restriction was already in force in other countries but that it had been imposed in Pakistan for the first time.

The measure was a part of the efforts by the SECP to make the insurance industry operate in a disciplined manner as provided in the Insurance Ordinance, Mr Rizvi remarked. As a result, their claim settlement behaviour had improved significantly and they were also abiding by the disclosure requirements of the law.

In this connection, he disclosed that the Commission had directed the insurance companies to ensure compliance with all the requirements of Insurance Ordinance including solvency margins while preparing their accounts for the year ending December 31, 2003.

By another directive, he said the insurance companies had been asked to pay all commissions to their agents by cheque, as provided in the Insurance Ordinance.

In response to another question, the SECP Commissioner said the number of general insurance companies which had yet to comply with the requirement to raise their paid-up capital to Rs50 million by December 31, 2002, was 9. These companies had since been prohibited from engaging in underwriting business.

The next deadline was December 31, 2004, by which the general life insurance companies have raised their capital to Rs80m. A total of 16 insurance companies have yet to meet that deadline.

As regards their premium income, he said the insurance companies, both life and non-life, increased it by 16pc in 2002-03.

Asked about crop insurance, Mr Rizvi said there had been no progress on that front for quite some time. One of the problems cited by him in this regard was the lack of credible statistics about the area under various crops and their output.