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Tag: insurance

This tag provides stories related to insurance. Pakistan Revenue is committed to provide updates on article related to insurance. Insurance has significance in Pakistan economy.

  • SECP proposes amendments to insurance laws

    SECP proposes amendments to insurance laws

    ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has issued draft bill to amend Insurance Ordinance 2000 with aim to bridge regulatory gaps in existing laws.

    The draft law has been placed on SECP’s website for stakeholders and public consultation.

    The draft bill will address the regulatory gaps in existing law and provide a conducive regulatory environment to encourage market development, the SECP said.

    It will facilitate use of technology, provide ease of doing business and address entity specific and systemic risks by shifting towards Risk Based Supervision (RBS) and Risk Based Capital (RBC) Regime, it added.

    The amendments in law will also strengthen the regulatory framework and ensure its alignment with the Insurance Core Principles (ICP) of the International Association of Insurance Supervisors (IAIS).

    The significant reforms proposed in the draft bill include introduction of dedicated micro-insurers, provisions for regulation of takaful and re-takaful, regulation of local and foreign reinsurance business for enhancement of local capacity, regulation of reinsurance brokers, flexibility for introduction of new intermediaries, insurance repository and insurance self-network platform, provisions for regulation of index based insurance and InsurTech.

    Provisions for introduction of RBS and RBC regime and establishment and operation of a guarantee fund for insolvency of insurers have been included to strengthen the regulatory framework and align the law with core principles of IAIS and address systemic risk.

    The amended law will also assist in enhancing compliance with AML/CFT frameworks.

    The changes include requirement of appointed actuary and product filing of personal lines for non-life insurance, appointment of internal actuary for life insurers and enhancement of market conduct provisions.

    The regulatory powers of the Commission for regulation and supervision of insurance companies and intermediaries, have also been streamlined in the draft bill.

  • SECP forms body to develop RBC regime for insurance sector

    SECP forms body to develop RBC regime for insurance sector

    ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has constituted a working group of actuaries for the development of Risk Based Capital (RBC) Regime in Pakistan, said a statement on Wednesday.

    The group members possess local as well as diversified international experience, it added.

    An insurance company during the normal course of operations is not only exposed to risk in relation to insurance contracts that it underwrites, but also to a variety of other risks including market risk, liquidity risk, credit risk, operational risk etc.

    Currently, compliance based Paid up Capital requirements and solvency requirements are levied on insurance companies.

    The solvency regime does take into account to some extent, liquidity risk, credit risk, market risk, insurance risk etc. in calculation of solvency through admissibility of assets test, however, it does not quantify the levels of different risks borne by the insurers and therefore does not deliberate on the adequacy of capital keeping in view the risks undertaken.

    Majority of international jurisdictions have already shifted or have commenced work to move towards RBC Regime for their insurance sector, few of these jurisdictions includes, Malaysia, China, India, Sri Lanka, Hong Kong, Turkey etc.

    The SECP believes that for RBC to be implemented, the most important part would be quantification of the different risks faced by the insurance companies including their correlation/ interconnectedness in relation to the size and complexity of an insurer.

    Introduction of RBC would provide true reflection of risks taken by insurance companies and would result in a more disciplined and financially resilient insurance sector in Pakistan.

  • Insurance should be excluded from taxable services

    Insurance should be excluded from taxable services

    KARACHI: The provincial tax authorities have been urged to exclude insurance from taxable services in order to provide incentives to insurance industry.

    Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2020/2021 submitted to Sindh Revenue Board (SRB), said that each year, the life/health insurance companies have been approaching the SRB for an exemption, which is granted annually.

    The last exemption for life insurance was valid only till June 30, 2019, whereas exemption for Corporate Health Insurance is valid till June 30, 2020 and has not yet been renewed.

    The life and health insurance industry is based largely in the province of Sindh, where, the medical sector itself is exempt from SST.

    Accordingly, subjecting the corporate health insurance to SST is making it uncompetitive, in Sindh, by adding on to the cost of health insurance.

    Discussions are still ongoing with the Chairman SRB, and the Chairperson, Sindh Board of Investment, for exemption on the same.

    The OICCI recommended that both, life insurance and health insurance, which do not fall within the scope of definition of service, should be permanently included in the list of exempted services by incorporating the same under table of exempted services specified in SRB’s notification no. SRB 3-4/7/2013 dated June 18, 2013, as per the following:

    01. 9813.15: Life Insurance

    02. 9813.16: Health insurance, rendered to both, individuals and corporates.

    It may be mentioned that in Sindh these are taxable services.

    A life insurance/ health policy is not a service. It is an underwriter’s promise to pay to the policy holder ‘in the future’, a specified sum of money, ‘either on occurrence of an identified event or on maturity of the policy’.

    Such tax is highly discriminatory as entire health sector itself remains exempt and is not taxed.

    This creates a deterrence for insurance business, as a person obtaining insurance would be paying additional 13 percent as well as cost of insurance, compared to directly obtaining health services, where he does not have to pay this tax.

    This is clearly discriminatory and in violation of Article 25 of the Constitution of Pakistan.

    The assertion that insurance is not a service, has also been legally upheld in USA and the Court there has ruled that life insurance policies are not “services”.

    The KP Revenue Authority has exempted life insurance from the purview of taxable services. Uniformity across the country is essential for ease of doing business.

  • One month free coverage to motor insurance policy holders

    One month free coverage to motor insurance policy holders

    ISLAMABAD: Securities and Exchange Companies of Pakistan (SECP) on Wednesday directed insurance companies to allow one month free coverage to motor insurance policy holders.

    The regulator in a press release said that in light of the outbreak of COVID-19 (Coronavirus) it has been advised non-life insurance companies to grant one month free of cost extension in insurance coverage to all motor insurance policyholders.

    The ongoing lockdown situation across the country has resulted in a significant decline in traffic density. With intercity public transport almost at a significant halt and limited within the city commute, it can be inferred that the policyholder claims in relation to motor insurance policies, would also have significantly declined.

    Taking into account the decline and/or the anticipated low claim ratio in motor business due to lockdown, insurance companies have been encouraged to take steps to facilitate and pass on the benefit of low claim ratio to motor insurance policyholders.

    As the fight against COVID-19 pandemic continues, it becomes imperative that insurance industry show its commitment to serve its policyholders by providing maximum relief and facilitation in all operational aspects. SECP believes that such good gestures in these difficult times will further increase policyholder’s confidence in the insurance sector.

  • SECP extends insurance license renewal date

    SECP extends insurance license renewal date

    ISLAMABAD: Securities and Exchange Commission of Pakistan (SECP) has extended license renewal date for insurance brokers in the wake of coronavirus outbreak.

    The SECP issued Circular No. 12 on Monday to extend the date for license renewal for insurance business.

    The SECP said that considering the gravity of the pandemic coronavirus (COVID-19) on public health and lockdown situation in the country, insurance brokers, insurance surveyors and authorized surveying officers are facing difficulties while ensuring compliance with regulatory requirements related to renewal of license under the Insurance Ordinance, 2000.

    The SECP said that in order to facilitate the insurance brokers, insurance surveyors and ASOs during the ongoing pandemic, the regulator issued following guidelines regarding renewal of licenses:

    (i) Any insurance brokers/insurance surveyor/ASO whose license has expired or will expire during the period from March 15, 2020 to May 15, 2020 shall continue to carry on its business without renewal of its current license with the commission;

    (ii) The above relaxation shall be effective for a period of two months i.e. it shall end on May 15. The respective insurance brokers, insurance surveyors, and ASOs shall be bound to file their applications prior to the deadline of May 15, 2020.

    (iii) Upon receipt of the application, license shall be renewed effective from the date of expiry of the previous license.

    (iv) Insurance brokers, insurance surveyors and ASOs facing difficulties to arrange documents, required under the Ordinance for renewal of license may avail the above mentioned relaxation.

    (v) While surveyors/ASOs can file applications online through e-services, insurance brokers may send their applications to the commission via email until the expiry of the lockdown; and

    (vi) All insurance companies/ general takaful operators shall continue to do business with insurance brokers /insurance surveyors/ASOs considering the grace period of two months for any license expired after March 15, 2020.

  • SECP directs life insurers to provide details of window Takaful operations

    SECP directs life insurers to provide details of window Takaful operations

    ISLAMABAD: Securities and Exchange Commission (SECP) has directed life insurers to provide details of their Family Takaful operations.

    The SECP issued Circular No. 15 dated November 18, 2019 and amended rules for financial reporting of family window Takaful operations by life insurers.

    The regulator amended the rules and directed to insurance companies having window Takaful operations to:

    — report its assets, liabilities, revenues and expenses separately for each segment of its conventional business and Takaful business;

    — to comply with the provisions of these rules or such other conditions as may be imposed by the Commission from time to time.

    The SECP under Takaful Rules 2012 also imposed following conditions on life insurers related to financial reporting of their window Takaful operations:

    1. Life insurers authorized to carry on window takaful operations shall include the Family Takaful results in their published financial statements as follow:

    a. The assets and liabilities of the window family takaful operations shall be consolidated with the assets and liabilities of the conventional operations in the statement of financial position of the life insurer.

    b. The incomes and expenses of the window family takaful operations shall be consolidated with the incomes and expenses of the conventional operations in the profit and loss account of the life insurer.

    c. Supporting notes where considered necessary for understanding of the users of financial statements shall be included as part of the notes to the financial statements; and

    d. The segment disclosure for Family Takaful Operations in accordance with the requirements of IFRS 8- Operating Segments shall be included in the financial statements.

    The SECP further directed that in the financial statements the retained earnings of the Participant Takaful Fund (PTF) shall be classified as insurance liability and included in the total liabilities of the Window Family Takaful Operations. Balance of the Operator Sub-Funds under the Window Family Takaful operations, shall be classified as part of shareholders’ equity of the life insurer presented separately into (i) retained earnings attributable to shareholders – ledger account D; and (ii) other components.

    The regulator further directed that life insurers shall separately prepare financial statements for Family Takaful operations as if these are carried out by a standalone Takaful Operator and shall be annexed with the insurer’s annual/interim report (as applicable). Supporting notes where considered necessary for understanding of the users of separate financial statements shall be included as part of the notes to the separate financial statements.

    “Accordingly, all life insurers undertaking Family Takaful business through window operations are directed to ensure that the financial statements for the periods commencing January 01, 2020 with the SECP under the provisions of applicable laws are in compliance with the conditions placed above.”

  • Tax rules for computation of profits, gains of insurance business

    Tax rules for computation of profits, gains of insurance business

    KARACHI: Federal Board of Revenue (FBR) has issued updated rules for the computation of profits and gains of the insurance business under Income Tax Ordinance, 2001.

    (more…)
  • PSX suspends trading of two insurance companies

    PSX suspends trading of two insurance companies

    KARACHI: Pakistan Stock Exchange (PSX) has suspended trading of two insurance companies for violating regulations and stopping commercial activities.

    In a notice issued on Monday, the stock exchange said pursuant to the directive received from Securities and Exchange Commission of Pakistan (SECP) through on October 04, 2019, following companies in the public interest, shall remain suspended for a further period of 60 days with effect from October 08, 2019 under sub-section (7) of Section 19 of the Securities Act, 2015.

    The companies are also in violation(s) of various sub-clauses of Regulation 5.11.1 of PSX Regulations mentioned against each, and unless the same are rectified, trading in their shares shall not resume.

    01. M/s Progressive Insurance Company Limited: Suspended commercial production/business operations in the its principal line of business and adverse opinion in the audit report.

    02. M/s. Silver Star Insurance Company Limited: Failed to hold the Annual General Meeting(s) and failed to submit its annual audited accounts.

  • Insurance sector growth continues; assets increase to Rs1,207 billion

    Insurance sector growth continues; assets increase to Rs1,207 billion

    KARACHI: The assets for the Life Insurance sector grew by 11.92 percent to Rs1,207 billion for CY18 as life insurers increased their Total Investments by 13.52 percent to Rs997 billion; investments now constitute 82.63 percent of total assets, State Bank of Pakistan (SBP) said in a report.

    Low insurance penetration (0.83 percent of GDP) indicates that there is room for growth in the Pakistani insurance sector (Global insurance penetration = 6.3 percent in 2016), the SBP said in Financial Stability Review (FSR) 2018.

    The asset base for the insurance sector has been estimated to have grown by 10.88 percent to Rs1,435 billion as of December 31, 2018 mainly due to an increase in the Life Insurance business.

    Investments and properties have registered an increase of 12.11 percent to Rs1,128 billion as of December 31, 2018. Equity for the industry has increased by 5.87 percent to Rs119 billion in CY18 as insurers try to comply with the enhanced regulatory paid-up capital requirements.

    Life insurers are considered among the large institutional investors for capital and debt markets.

    Given the volatility in the financial markets, life insurers have decreased their share of investment in equities from 20.32 percent in CY17 to 18.10 percent in CY18 while increasing their share of investment in fixed income and term deposits from 1.93 percent in CY17 to 5.38 percent in CY18.

    Life insurers continue to have a significant portion (76.14 percent in CY18) of their investments in government securities.

    In addition, the dominant public life insurer has increased its investments in properties by 14.82 percent to Rs3.7 billion; overall, investment in properties constitutes 0.37 percent of total investments in CY18.

    Growth rate comparison of real GDP and real gross premiums for the life sector shows a positive correlation indicating that an increase in economic activity may lead to an increase in gross premiums for Pakistan.

    Total gross premium for Life insurance sector has increased to Rs203 billion in CY18 from Rs185 billion in CY17. The increase of 19.46 percent in Subsequent Year Premium to Rs109 billion, coupled with the 12.55 percent YOY increase in Second Year Premium, signifies that the sector has been able to retain its business.

    Moreover, the First-Year Premium to Gross Premium sustained its growth of 9.40 percent in CY18 indicating that the sector sustained issuance of new insurance policies.

    The increasing interest rate environment may have led policyholders to look for better rates, which may have led to redemption of policies; this is supported
    by the spike in Surrender Claims in CY18.

    However, there has been a substantial decline in Single Premium from Rs16 billion in CY17 to Rs7 billion in CY18 as a private life insurer registered a significant decrease in this category over the last year. This policy (along with other life insurance policies) is used to claim tax rebate.

    The reduction in tax rates in 2018 along with the prevailing inflationary pressures (which reduces the net future value of the upfront single premium) may have lowered the demand for this product, as they may no longer form an attractive tax saving option, the SBP said.

    Life insurers are required to maintain statutory funds in respect of each class of life insurance business; statutory finds are separate from shareholders’ fund, which contains only those assets and liabilities that are solely attributable to the life insurer.

    Analysis of statutory funds indicates that Family Takaful Fund has shown extraordinary growth for Gross Premiums in CY16 and CY17 of 1190.61 percent and 136.58 percent, respectively. While this illustrates the widespread demand for an Islamic alternative to conventional insurance, the growth rate of Gross
    Premiums for Takaful Fund is extraordinary because of the small base in 2015. This is demonstrated by the lower (albeit still impressive) growth rate of 34.61 percent to Rs14 billion in Gross Premiums for Takaful Fund in CY18.

    Ordinary Life, which includes individual and group insurance, still forms the largest statutory funds; its Gross Premiums have increased from Rs100 billion in CY17 to Rs112 billion in CY18.

    Due to the initiatives of one of the provincial government to increase health coverage for its population, the gross premium for the public life insurer’s Health Investment Fund has increased by 38.83 percent to Rs5 billion in CY18. It is expected that there will be further growth in this Fund as the federal government has re-launched a national-wide health insurance program.

    Claims under individual policies increased from Rs63 billion in CY17 to Rs72 billion in CY18. This was mainly due to increases of Rs4 billion and Rs3 billion to Rs44 billion and Rs16 billion in Surrender Claims and Maturity Claims, respectively.

    Surrender Claims, forming 49.24 percent of Gross Claims for CY18, have registered a 19.05 percent YOY increase, indicating that significant number of policyholders are exiting from their insurance policies before maturity; this development may lead to maturity mismatches for the sector.

    Several factors have led to an increase in Surrender Claims including the prevailing financial market conditions, which has reduced the value of unit-linked policies (with significant investments in equities); this, coupled with the increasing interest rates, may possibly lead policyholders to surrender their policies in search of higher yields.

    In addition, in order to meet their sales targets, agents may encourage recycling of policies, which increases Surrender Claims.

    While the Life Insurance sector is relatively stable, some of its indicators have started to deteriorate slightly. Return on Assets has decreased from 0.79 percent in CY17 to 0.69 percent in CY18, as there was only a marginal increase in profitability compared to a significant increase in the asset base for the sector.

    Profitability was affected due to an increase in management and marketing expenses as some insurers invested in their branch network, salesforce, IT software, etc. for higher future returns.

    In addition, the Claims Ratio has increased from 41.91 percent in CY17 to 43.83 percent in CY18, which is still quite comfortable. In addition, the Return on Investments has increased from 7.10 percent in CY17 to 8.08 in CY18 due, in part, to a tightening of monetary policy in CY18 as the sector maintains a significant portion of investments (76.14 percent) in government securities, the SBP said.

  • 2019/2020: Withholding tax rates on insurance premium

    2019/2020: Withholding tax rates on insurance premium

    ISLAMABAD: The insurance companies are required to deduct/collect withholding tax only from persons not appearing on the Active Taxpayers List (ATL) at the time of collection of insurance premium.

    Federal Board of Revenue (FBR) issued withholding tax card for tax year 2019/2020 and updated tax on insurance premium under Section 236U of Income Tax Ordinance, 2001.

    The FBR said that advance tax to be collected at the time of collection of insurance premium from a person whose name is not appearing in the active taxpayers’ list, by every insurance company in respect of General Insurance Premium and Life Insurance Premium.

    The withholding tax rates shall be:

    General Insurance Premium at four percent

    Life Insurance Premium if exceeding Rs0.3 million in aggregate per annum at one percent

    In other cases there will be not tax collection.