Restricted classes of insurance trade: SECP for adding ‘credit, suretyship business’ to the list

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has strongly recommended to include Credit and Suretyship Business within the scope of restricted classes of insurance business. The objective is to enable the Commission to impose entry barrier for insurers seeking to undertake such business, including minimum financial strength, operational capacity, expertise, governance arrangements, and risk management standards, considering the specialized nature and risk profile of the business. The SECP has proposed major amendments in the Credit and Suretyship Rules, 2018 and the Insurance Rules, 2017 to promote the sustainable development of the Credit and Suretyship insurance market. READ ALSO: Exporters: FBR issues draft Insurance Guarantee Format According to the SECP, in light of the evolving landscape of Credit and Suretyship (C&S) business and the need to strengthen prudential safeguards, market discipline, contractual clarity, and policyholder protection, the Commission is considering certain amendments to the Credit and Suretyship Rules, 2018 and the Insurance Rules, 2017. These proposed amendments are aimed at enhancing legal certainty in bond/guarantee contracts, strengthening insurers’ financial resilience, ensuring sound underwriting and reserving practices, and promoting the sustainable development of the Credit and Suretyship insurance market. The majority of the performance bonds and mobilization advance guarantee contracts in Pakistan relate to the construction sector, where beneficiaries generally require unconditional insurance guarantees or bank guarantees to ensure immediate enforceability in the event of contractor default. However, in practice, in a few instances policy documents simultaneously describe these guarantees as unconditional while also incorporating clauses subjecting disputes or payment obligations to arbitration or assessment of contractual breach. Such contradictory provisions create uncertainty regarding the true nature of the instrument and frequently lead to disputes at the claim stage, particularly where the insurer or guarantor seeks to assess the contractor’s default before making payment. Currently, the credit and suretyship business is not included as a restrictive class of business as per Insurance Rules, 2017 which results in allowing all insurance companies to undertake credit and suretyship business. Surety underwriting is a critical process particularly in the context of providing bonds and guarantees for large value complex construction projects. Underwriters in the surety business needs to assess the risk associated with issuing bonds by the contractor’s financial strength to gauge their liquidity, solvency, and overall financial stability. Additionally, underwriters need to delve into the contractor’s track record, examining past projects, performance history, and adherence to contractual obligations. The underwriting process also involves a comprehensive evaluation of the specific project risks, considering factors such as project size, complexity, and contractual terms to determine the appropriateness of issuing a surety bond. Credit and Suretyship Business is not classified as restrictive business Under the current regulatory framework, several classes of business, including motor third-party compulsory business, workers’ compensation business, accident and health business, proportional treaty business, and non-proportional treaty business, are designated as restricted classes of business. Such classification enables the regulator to specifically assess and determine, at the licensing stage, whether an insurer possesses the requisite financial capacity, technical expertise, governance framework, and operational capability to undertake such business, SECP added. Copyright Business Recorder, 2026

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