ISLAMABAD, Nov 29: The government is expected to finalize on Friday creation of a “reinsurance pool” with an initial capital of Rs750 million to provide cover to Pakistani companies for terrorism-related risk from January 1, 2002.
Finance Minister Shaukat Aziz will preside over a meeting here on Friday to discuss the report of the task force on measures to overcome the difficulties faced by the insurance companies in Pakistan in the aftermath of September 11 crisis. Minister for Commerce, secretary-general, finance, secretaries of finance and commerce, chairman of Securities and Exchange Commission of Pakistan (SECP) and chairman of task force on insurance Kamal Asfar would attend the meeting.
The four-member task force was constituted last month to suggest a plan of action to overcome the difficulties the insurance industry would face after December 31, 2001 when international insurers would stop the reinsurance cover.
The task force submitted it report on November 21 and same day the ministers of finance and commerce were approached by the SECP to finalize the course of action suggested by the task force in view of urgency and limited time factor. The pool has to be operational before the end of next month to meet reinsurance requirement of local companies.
The task force recommended that the government should contribute to the Reinsurance Pool an initial amount of Rs500 million. The Asian Development Bank (ADB) is expected to provide $50 to 100 million.
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 sum insured or Rs100 million whichever is less. And 50 per cent of this amount will be provided by the Pool and the remaining 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.
Moreover, 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.
