ISLAMABAD, Nov 22: The government is expected to create a “reinsurance pool” with an initial capital of Rs750 million to provide cover to Pakistani companies for terrorism-related risk from January 1, 2002.

This is being contemplated on the report of a task force on insurance constituted by the Securities and Exchange Commission of Pakistan (SECP) last month. The international insurers have refused to provide risk cover to terrorism, civil commotion and riots after January 1, 2001.

The SECP chairman Khalid Mirza told a news conference here on Thursday that the government would initially contribute to the Reinsurance Pool an amount of Rs500 million. The Asian Development Bank (ADB) is expected to provide $50 to 100 million which would be increased.

Another Rs250 million would be contributed to the pool by the insurance companies out of the premium they earn on account of the insurance cover provided for terrorism, riot strike damage (RSD), etc.

The membership of the pool would be open to all companies. The pool would be attached with Pakistan Reinsurance Company Limited (PRCL) and National Insurance Company Limited (NICL) and would be supervised by a technical committee comprising professionals from public and private sector.

The maximum amount of loss payable through the pool would be 25 per cent of the sum insured or Rs100 million whichever is less. Fifty per cent of this amount will be provided by the Pool and 50 per cent to be arranged under the “excess of loss”, protection arrangement made by the Pool with international reinsurers.

The task force has also recommended to increase the domestic retention and reinsurance capacities in order to reduce dependence on foreign reinsurers.

For this purpose, the present capital base of PRCL, the only reinsurance company in Pakistan, should be increased through capitalization of reserves.

Furthermore, leading insurance companies in Pakistan including NICL would be offered to join in. Leading foreign insurers and the World Bank, ADB and IFC would be approached to pool in the equity of PRCL.

A new reinsurance company with the participation of the leading local and foreign insurance companies, the World Bank, ADB and IFC would be established as a medium term solution to similar risks in future. It could be opened to the general public for subscription.

The SECP chairman said that he had received the report from the task force on Thursday and had recommended to the ministries of finance and commerce to consider it on an emergency basis because a lot of work has yet to be done to operationalize the Reinsurance Pool.

“We are running against the clock and we need to put in place the pool in the next couple of months,” said the chairman. He said that an ADB delegation was scheduled to hold discussions with authorities in Islamabad next week on the subject.

The ADB loan for this aspect could go up or down depending on the discussion but $50 million to 100 million loan, as indicated by the ADB, would be forthcoming, said Mr Mirza.

Asked as to how he was so sure that the government would make available Rs500 million seed money for the Pool, Mirza said: “It is a matter of sufficient importance and the government will have to settle priorities towards that end.”