Pakistan: Guarantee/surety bond market opens up
Source: Asia Insurance Review | Jul 2018
The Securities and Exchange Commission of Pakistan (SECP) has allowed insurance companies to issue guarantees/bonds including custom bonds, fidelity bonds, mobilisation advance guarantees, administration bonds and payment bonds to a party or a group.
The SECP said that an insurer’s net retained exposure under any type of guarantee/bond issued by the insurer to a party or a group shall not exceed 2.5% of the insurer’s shareholders’ equity as per the latest available audited accounts of the insurer on the date of issuance of a guarantee/bond.
Subject to the limit prescribed, an insurer shall procure collateral in case of guarantees/bonds of an amount equivalent to at least 80% of the sum insured/amount of bond/guarantee less reinsurance in respect of a particular guarantee/bond.
An insurer shall, at all times, ensure that the aggregate net retained exposure on all outstanding and in-force guarantees/bonds, on which these rules apply, shall not exceed the greater of 100% or such other percentage as the Commission may notify from time to time through notification, of the insurer’s shareholders’ equity.
The SECP stated that the guarantee/bonds issued shall not be construed as bank guarantees issued by commercial banks and such guarantees/bonds shall be claimable in accordance with the terms and conditions provided in the contract of guarantee. A