Pakistan's Securities and Exchange Commission of Pakistan (SECP) has proposed tighter regulatory controls for insurers providing guarantees linked to government contracts, construction, procurement and trade.
A report by Profit by Pakistan Today said the proposals include classifying credit and suretyship insurance as a restricted class of business, allowing the regulator to apply closer scrutiny and limit the segment to insurers with adequate financial capacity to take on the associated risks.
The proposed framework would cover bid and performance bonds, mobilisation advance guarantees and customs guarantees issued by insurance companies.
Insurers writing this business would face enhanced solvency and reserving requirements, alongside risk-based pricing and requirements for appropriate reinsurance protection. The SECP has also proposed mandatory indemnification agreements and clearer contractual provisions covering conditional and unconditional guarantees.
The measures are aimed at addressing disputes over guarantee terms, delays in settling claims and prolonged litigation involving insurance-backed guarantees. These instruments are used to provide financial protection to government agencies, project owners and businesses when contractors or other counterparties fail to fulfil their contractual obligations.
SECP Chairman Dr Kabir Ahmed Sidhu said the proposed requirements would strengthen insurers’ financial capacity and risk management while improving contractual clarity and confidence in insurance-backed guarantees. The regulator has opened the proposals for consultation and is seeking feedback from insurers, contractors, businesses, government entities and other stakeholders before finalising the framework, Profit by Pakistan Today reported.