ISLAMABAD, April 8: The Securities & Exchange Commission of Pakistan (SECP) has forbidden three insurance companies — Dadabhoy Insurance Company, Continental Insurance Company and Gulf Insurance Company — to underwrite insurance business in the country, an official source stated here on Monday.

Explaining the reason, the source said, these companies had failed to fulfil a requirement of the law that makes it obligatory on all the insurance companies to make reinsurance arrangements with a view to protecting the insurance policy-holders from loss and ensuring that the insurance business in Pakistan was operated on sound lines.

The above mentioned companies did not submit any documentary evidence in respect of making reinsurance arrangements for the year 2000.

In this connection, the SECP pointed to Section 63(1) of the Insurance Ordinance, 2000, which states: “The Commission may issue a direction to cease entering into new contracts of insurance if it believes on reasonable grounds that an insurer registered under this Ordinance has failed, or is about to fail, to comply with the conditions of registration set out in Section 11 of the Insurance Ordinance 2000.”

After the SECP staff, following scrutiny of the relevant record, detected the irregularity, show-cause notices were issued to the three companies and they were directed to furnish explanations for their non-compliance with the statutory requirements of the said ordinance. They were also accorded the opportunity of personal hearing to explain their position. These companies, however, did not bother to respond to the notices.

In reply to a question, the source said that Pakistan had 48 insurance companies. But as many as 22 companies failed to make 100 per cent reinsurance arrangements with international reinsurers, who are rated “A” and above. The SECP had notified this requirement in October last.

In order to ensure protection of the interests of the insurance policy-holders, the SECP directed these 22 companies to get their claims-paying ability/financial strength rated by a rating agency duly licensed/authorized operating in Pakistan.

The question as to whether any one of these would also be asked to cease underwriting was linked with the rating of their claim-paying ability to be awarded by a rating agency, he stated.

As regards the proportion of the insurance business in the country that is with those who have made 100 per cent arrangements with the international reinsurers, he said 85 per cent of the business fulfilled that requirement. “It is these companies that can serve interests of the general public satisfactorily,” the Commission asserted.