ISLAMABAD, June 20: Securities and Exchange Commission of Pakistan has put 21 insurance companies on notice warning them that their registration may be revoked unless they get their claims paying ability/financial strength rated by a recognised credit rating agency by June 30, according to an official source.

Under the new insurance law — Insurance Ordinance 2000— enacted to regulate the insurance business primarily to protect the interests of the policyholders, all the insurance companies operating in Pakistan had been directed by the SECP in October last year to make sound reinsurance arrangements with international re-insurers rated at least “A”.

The SECP had issued this directive after receiving complaints from the public against non-payment of claims by the insurance companies.

On investigation, the source said, it was usually observed that a company’s unwillingness or inability to pay the claims, even in cases when the claim was assessed and declared payable by an independent insurance surveyor, was due to lack of sufficient/sound reinsurance arrangements.

In order to protect the interest of the insured/policy holders, the SECP had been trying to enhance the capacity of the local insurance industry to honour the claims made to it.

Detailed scrutiny of the treaty arrangements filed by the insurance companies revealed that 21 companies were unable to make arrangements with “A” rated international re-insurers, as required under the aforesaid Commission’s directive.

As an alternative, the Commission asked these companies to get their Claims Paying Ability/Financial Strength rated by recognized rating agencies in the country by April 30, 2002.

That deadline, however, passed without any of the 21 companies reporting compliance with the directive.

While extending the deadline till June 30 today, the Commission warned that failure to comply with it, would invite action under relevant provisions of the Insurance Ordinance, which could lead to either revocation of their registration or a directive to cease underwriting new insurance business.