The Securities and Exchange Commission of Pakistan (SECP) has decided to move towards development and implementation of a risk based capital (RBC) regime for the insurance sector in a phased manner.
Acting on the decision, the SECP has decided to form a technical working group comprising officials of SECP’s Insurance Division, the Pakistan Society of Actuaries and insurance companies.
The committee is tasked with the responsibility of developing the RBC regime.
Currently, the supervisory system is based on capital and solvency requirements. The solvency system takes into account, to some extent, liquidity risk, credit risk, market risk, insurance risk, etc. in the calculation of solvency through tests of the admissibility of assets. However, the current system does not quantify the levels of different risks borne by insurers.
The SECP believes that for the RBC framework to be implemented, the most important step would be quantification of the different risks faced by insurance companies, including their correlation or interconnectedness in relation to the size and complexity of an insurer’s business.