SECP Issues Concept Paper on Risk-Based Capital Regime

The Securities and Exchange Commission of Pakistan (SECP) has issued a concept paper on the Risk-Based Capital (RBC) Regime, outlining the possibility of shifting from the existing solvency-based regime towards an RBC regime for Pakistan’s insurance sector. The proposed framework is consistent with international best practices, aimed at improving corporate governance, enterprise risk management, and public disclosure practices of insurers. The existing requirements of Insurance Ordinance 2000 and Insurance Rules 2017 prescribe a rule-based capital adequacy framework for insurers in Pakistan. While focusing on overarching principles, the Concept Paper contains clear and consistent valuation standards (including explicit best estimates of technical provisions and risk margins) and risk-sensitive capital requirements covering all types of risks that individual insurers are bearing. It also deliberates on the calculation, levels of capital adequacy, methodology for available and required capital, and difference risk capital charges. The concept paper is based on the recommendations of the Technical Working Group (TWG) formed by the SECP. The TWG was composed of officials of the Pakistan Society of Actuaries, SECP representatives, and actuaries from the private sector. In order to have a broad-based consultation on the proposed regime and to ensure that the proposed RBC framework is viewed in the light of local industry feedback, SECP has invited all the stakeholders to provide their feedback and comments on the concept. The proposed framework is available on SECP’s website.