Pakistan

Principal Legislation

The primary legislation governing insurance in Pakistan is the Insurance Ordinance, 2000, which forms the foundation for regulation of life, general, and takaful insurance. The Ordinance is administered by the Securities and Exchange Commission of Pakistan (SECP) through its Insurance Division.

The SECP continues to enhance the insurance regulatory environment through updates to rules and reporting requirements. This includes revisions to:

• Insurance Rules
• Insurance Accounting Regulations
• General Takaful Accounting Regulations

Recent regulatory changes have introduced:

• Higher capital requirements, with phased increases for life and non-life insurers.
• The ability for insurers to issue subordinated debt instruments, now recognized under the solvency framework.
• Strengthened financial disclosure and solvency monitoring, aligned with global practices and risk-based regulation principles.
• These updates reflect the SECP’s broader agenda to modernise the insurance sector, improve market stability, and align Pakistan’s regulatory landscape with international standards.

Supervision

The insurance industry in Pakistan is regulated by the Insurance Division of the Securities and Exchange Commission of Pakistan (SECP), which oversees licensing, solvency, corporate governance, and reporting standards for life, general, and takaful insurers. The Insurance Association of Pakistan (IAP) serves as the industry’s representative body and coordinates with the SECP on regulatory matters.

Recent regulatory developments include the requirement for insurers to establish a dedicated Actuarial Function, responsible for evaluating pricing, reserving, solvency margins, and reinsurance strategy. The SECP is also encouraging digitalisation, including centralized data platforms and online distribution channels. In addition, Pakistan is working toward full compliance with IFRS 17 to improve the quality and consistency of insurance financial reporting.

Admitted/Non‑Admitted

In Pakistan, non-admitted insurance is generally prohibited. Most insurance coverage must be underwritten by companies registered and licensed to operate within the country.

Marine export cargo insurance is the only class that may be underwritten directly by overseas insurers or their local branches—in accordance with the Insurance Ordinance, 2000 and related rules.

All other insurance classes must be placed through locally registered insurers.

Reinsurance companies, including foreign reinsurers, are not required to be locally registered or licensed to transact business in Pakistan provided risks are ceded via registered local insurers.
 
Important regulatory note (anti-fronting):

Fronting (i.e. using a local insurer as a mere pass-through so that the real risk is placed overseas) is prohibited unless expressly approved by SECP. Rules require that local risks must be retained or reinsured domestically unless formally exempted.

Compulsory Classes

• Motor third party liability.
• Workmen’s compensation insurance.
• Professional indemnity for insurance brokers and loss adjusters.
• Airline liability.

State Involvement

In Pakistan’s insurance industry, several state-owned entities continue to play pivotal roles:

• National Insurance Company Limited (NICL): Holds exclusive rights to underwrite public sector non-life risks under Section 166 of the Insurance Ordinance 2000, creating a statutory monopoly in this segment.
• Pakistan Reinsurance Company Limited (PRCL): The sole professional reinsurer with an exclusive “first right of refusal” on at least 35% of local reinsurance placements.
• State Life Insurance Corporation of Pakistan (SLIC): The only state-owned life insurer, backed by a federal guarantee under the Life Insurance (Nationalization) Order 1972, dominating the life sector.

The Competition Commission of Pakistan (CCP) has raised concerns about these monopolistic privileges and recommended reforms to introduce private-sector competition in public sector insurance and reinsurance markets.

Tariff Classes

Pakistan operates a free-rated insurance market without statutory tariff classes. Insurers set their own rates subject to approval by the Securities and Exchange Commission of Pakistan (SECP), which ensures rates are fair, actuarially sound, and non-discriminatory. While standardization is encouraged for market discipline, pricing flexibility remains. Fronting arrangements are permitted without specific tariff restrictions.

Premium Taxes and Charges

Local insurance clients are subject to:

• Federal Insurance Tax: 1% on non-life premiums, excluding marine export cargo.
• Federal Excise Duty (FED): 17% sales tax on insurance services, generally exempting life insurance.
• Stamp Duty: Applied per class and provincial regulation under the Stamp Act of 1899.
• Reinsurance Withholding Tax: 5% on gross premiums ceded to foreign reinsurers.

Policy Language

Insurance policies in Pakistan are generally issued in English, which is the default for regulatory, legal, and commercial purposes. Urdu versions may be offered for retail clients, but the English text prevails in legal matters.

Policies are typically denominated in Pakistani Rupees (PKR), though foreign currency policies are permitted for eligible risks with regulatory approval.

Pakistan’s non-life insurance sector continues its upward trajectory, driven by evolving reinsurance practices and solid market fundamentals:

• Non-Proportional Reinsurance
  Leading insurers are increasingly using excess-of-loss reinsurance for property and marine risks, in line with global best practice.
• Cessions Based on Sum Insured
  Treaty cessions are typically structured on a sum insured basis, rather than PML, offering clearer pricing and exposure control.
• Market Momentum
  Listed general insurers recorded a 35% rise in profits, a 25% increase in net premiums, and 38% higher investment income in 2024.

The reinsurance market is led by the state-owned Pakistan Reinsurance Company Limited (PRCL), the country’s sole licensed professional reinsurer. Established in 2000 from the Pakistan Insurance Corporation, PRCL provides treaty and facultative reinsurance across major lines of business. Local insurers are required to cede a minimum of 35% of their reinsurance business to PRCL before accessing foreign reinsurers. PRCL also plays an active role regionally through memberships in organizations like ECO and FAIR, supporting local premium retention and fostering greater market integration.

The insurance market is mainly agent-driven, with most agents tied to a single insurer and registered with the SECP. Brokers operate in specialized risks but is limited and must hold SECP licenses. Bancassurance is growing, especially in life insurance, and digital platforms are increasingly used for sales and service. The SECP actively supports innovation to enhance accessibility and inclusion.

Pakistan is considered a medium-risk earthquake zone, particularly in the northern regions and along tectonic fault lines, though insurance coverage for seismic events is low. Flooding is the most significant natural hazard, especially during the monsoon season when major rivers like the Indus frequently overflow; however, flood losses are largely uninsured, especially in rural and residential areas. Windstorm and cyclone exposure is generally low, with occasional severe weather in northern and coastal areas such as Sindh and Balochistan. Overall, catastrophe insurance penetration is limited, prompting growing efforts to raise awareness and develop innovative disaster insurance products, including parametric and microinsurance solutions.