ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) Wednesday constituted a working group of actuaries for the development of Risk Based Capital Regime in Pakistan.
The group members possess local as well as diversified international experience, according to the regulator.
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, and 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.
According to the SECP, majority of international jurisdictions have already shifted or have commenced work to move towards RBC regime for their insurance sector. A few of these jurisdictions include Malaysia, China, India, Sri Lanka, Hong Kong, and 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.
The SECP believes that 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. – TLTP