November 08, 2023 (MLN): To strengthen the financial stability and enhance the risk management capabilities of insurance companies, the Securities and Exchange Commission of Pakistan (SECP) has issued a concept paper, offering them an alternative source of capital.
This concept paper delves into the issuance of subordinated debt by insurance companies and its treatment for solvency purposes, along with a draft of proposed amendments to the Insurance Rules 2017 to elicit public comments.
The paper also explores the characteristics and regulatory framework for subordinated debt securities, aiming to enable insurance companies to efficiently utilize eligible subordinated debt in their solvency requirements.
Issuance of subordinated debt under the proposed framework has the potential to bring several advantages to the insurance companies including the ability to maintain solvency margins, engage in alternate capital raising, enhance creditworthiness, and provide the capacity to absorb risks during financial stress.
As new debt instrument issuers, insurance companies' subordinated debt issuing can significantly contribute to Pakistan's corporate debt market growth.
The concept paper and proposed revisions are part of the Insurance Division's efforts to support a five-year insurance sector development plan for sustainable growth and insurance for all in Pakistan.
