The State Bank of Pakistan has decided to allow local insurance companies to cover and open insurance policies in US dollar denominated to meet the condition of foreign lenders.

The State Bank of Pakistan in circular issued on Wednesday said that it has now been decided to allow resident insurance companies, rated at least as “A” by any approved rating agency of Pakistan, to issue US Dollar denominated insurance policies on notional basis to meet the condition of foreign lenders for foreign currency loans.

The insurance company intending to issue US Dollar denominated insurance policy will submit an application for prior approval to the Director, Exchange Policy Department, State Bank of Pakistan, Karachi through an Authorized Dealer along with an explicit recommendation letter from the Securities & Exchange Commission of Pakistan (SECP) for each proposal.

The terms and conditions governing such insurance covers/policies shall be as follows:

The insurance company will receive the premium from the applicant only in equivalent to Pakistan Rupees.

The payment of claim to the resident company will be made in equivalent Pakistan Rupees, wherever applicable.

The insurance company will have the option to get reinsurance from any foreign reinsurer upto 99 percent of the sum assured.

The payment of reinsurance premium by the insurance company will be subject to observance of all applicable rules, regulations as defined under Chapter 15 of the Foreign Exchange Manual and those issued from time to time.

The reinsurance claims to the extent of outstanding liability related to the foreign loans may be paid directly to the foreign lenders by reinsurers. The remaining amount of reinsurance claim will, however, be repatriated into Pakistan and paid to the claimant in equivalent PKR.

The insurance policy document/instrument issued by the resident insurance company to the concerned client must disclose, interalia, above mentioned clauses.