The State Bank of Pakistan (SBP), the central bank, is allowing insurance companies to issue US dollar-denominated insurance policies to cater to foreign lenders who grant foreign currency loans.
The insurance company will have the option to secure reinsurance from any foreign reinsurer for up to 99% of the sum assured, reported Business Recorder citing an SBP circular.
An insurance company will be required to get prior approval from the SBP through Authorised Dealers for the issuance of US dollar-denominated insurance policies, along with an explicit recommendation letter from the Securities & Exchange Commission of Pakistan (SECP) for each proposal. The insurer needs to be rated at least "A" by any approved rating agency of Pakistan.
Under the directive, the insurance company will receive premiums from the applicant only in equivalent Pakistani rupees and the payment of claims will be made in the local currency, wherever applicable.
The reinsurance claims to the extent of the outstanding liability related to the foreign loans may be paid directly to foreign lenders by reinsurers. The remaining amount of a reinsurance claim will, however, be repatriated into Pakistan and paid to the claimant in the Pakistani rupee.