In Pakistan, insurance contracts are primarily governed by the provisions of the Insurance Ordinance, 2000 (hereinafter referred to as the “Ordinance”), along with the rules and regulations made thereunder and the directions issued by the Securities and Exchange Commission of Pakistan (hereinafter referred to as the “SECP”), which serves as the principal regulator of the insurance industry. Insurers are required to ensure that policy documents, proposal forms, endorsements, and other related instruments conform to the requirements of the applicable legal and regulatory framework. The SECP maintains regulatory and supervisory oversight over insurance companies, including proactive oversight relating to policy wordings, insurance products, and business practices for life insurance contracts. Over and above the general principles outlined below, the regulation of writing of insurance contracts varies depending on whether these related to life or non-life insurance business.

In addition to the specialized insurance regime, insurance contracts are also subject to the general principles of contract law contained in the Contract Act, 1872. Consequently, an insurance contract must satisfy the essential requirements of a valid contract, including offer and acceptance, lawful consideration, free consent of the parties, and a lawful object. The insurance contract is a contract of indemnity. It is interpreted by courts to implement only the objectively reasonable expectations of the insured. If the terms are vague, it should be interpreted for the benefit of the assured. The intention of parties is determined through the relevant document that is given due weightage.

The very distinctive element of an insurance contract comes from the Latin phrase, uberrimae fidei (ie, duty of utmost good faith, meaning obligation of the insured to inform the insurer of every circumstance relevant to the risk that has been underwritten). While courts will interpret ambiguous terms in the insurance contract in favour of the insured, the courts must ordinarily interpret the contract of insurance by looking at the plain meaning of the words used by the parties.  Under section 75 of the Ordinance, the principle of ‘utmost good faith’ has been accorded statutory approval. As such, it is an implied term of every insurance contract that either party to it must act towards the other party in respect of any matter arising under or in relation to it with the utmost good faith.

Additionally, in terms of section 76 of the Ordinance, an insurer is prohibited from engaging in misleading or deceptive conduct. Moreover, in terms of section 77 of the Ordinance, the contra proferentem rule i.e the rule of interpretation that ambiguities in insurance contracts ought to be resolved in favour of insurance policy holders, has been accorded statutory recognition. In view of the provisions of section 78, parties are prohibited from contracting out of the provisions of the Ordinance.

While insurers are required to conform to the above rules in drafting insurance contracts and endorsements thereon for non-life insurance contracts, the policy wordings do not require review and endorsements by the SECP before issuance. On the other hand, the regulatory regime for life insurance contracts i.e i) Ordinary life business; ii) Capital Redemption Business; iii) Pension fund business; and iv) accident and health business, calls for prior submission and approval of all life insurance policies proposed to be offered by the insurer in terms of sections 6 and 13 of the Insurance Ordinance, 2000 as a necessary condition precedent to their registration. These include i) terms and conditions being offered; ii) provision as to surrender value together with calculation as to its basis; iii) proposed marketing material; iv)  for investment linked policies: the investments to which they relate, basis of benefits payable, frequency and basis for determination of unit value etc. For ease of insurers, once insurance products together with policy terms and conditions have been approved by the SECP, further changes may be brought about without seeking express prior approval provided life insurance policies proposed to be offered i) have been reviewed and approved by an internal committee; ii) have been certified by an appointed actuary in relation to soundness and workability, etc.

The Ordinance broadly distinguishes between life insurance business and  non-life insurance business and further divides them into classes. Reinsurance business is also treated separately. The Insurance Ordinance, 2000 contains separate provisions dealing with life insurance business and reinsurance business.

With respect to life insurers, the principal provisions include:

• Sections 3 and 4, which classify insurance business and define the various classes of life insurance business;
• Sections 13 to 27 (Part III), which govern statutory funds, allocation of surplus, actuarial requirements, and the appointment and responsibilities of actuaries in relation to life insurance business;
• Sections 35 and related solvency provisions concerning admissible assets and solvency requirements applicable to life insurers.

Reinsurance business is principally governed by:

• Part VI of the Ordinance (Sections 40 to 44), which deals specifically with reinsurance arrangements, compulsory cessions, retention requirements, and reinsurance with the Pakistan Reinsurance Company Limited;
• Section 41, which requires insurers to maintain appropriate reinsurance arrangements subject to regulatory oversight by the Securities and Exchange Commission of Pakistan;
• Section 42, concerning compulsory cession and treaty reinsurance requirements.

While Non-Life business is principally governed by:

• Section 4 which classifies insurance business and distinguishes between life insurance business and non-life insurance business (commonly referred to as general insurance business).
• Section 2(20) which defines “non-life insurance business” or “general insurance business” to include classes such as fire, marine, motor, health, liability, and miscellaneous insurance.
• Part IV (Sections 28–39) which contains provisions specifically applicable to insurers carrying on non-life insurance business, including:
  • maintenance of solvency margins,
  • admissible assets,
  • reserves and accounts,
  • financial reporting obligations,
  • limitations on management expenses, and
  • regulatory compliance requirements.

Part XIII of the Insurance Ordinance 2000 (Sections 94 to 113) provides for three primary intermediaries for direct insurance business i.e i) Insurance Agents; ii) Insurance Brokers; and iii) Insurance Surveyors.

In terms of the relevant provisions, it is not lawful for any person to act as an insurance agent except under a contract of writing even though no official license is necessary. However, anyone who arranges insurance for remuneration is presumed to be an agent of the insurer and all insurers are bound by all acts and omissions of their agents. Furthermore, all insurers are required to maintain a register of their agents. The legal framework provides for qualifications and disqualifications of insurance agents, duty of disclosure and restricts life insurance agents from becoming or remaining directors in Insurance Companies.

While insurance brokers are similarly regulated, they are also required to obtain a license of registration from the Securities & Exchange Commission of Pakistan (SECP). Only companies having prescribed paid up capital, statutory deposits and professional indemnity insurance may be registered as Insurance Brokers. While brokers are generally regarded as independent intermediaries who represent policyholders or prospective policyholders rather than insurers, the Insurance Ordinance mandates that insurance brokers will be presumed to be agents of insurers with which they have a contract of agency irrespective of their broker license. In addition, brokers must maintain proper books and records, meet fit and proper criteria for their directors and management, and adhere to prescribed disclosure and conduct obligations. They are also expected to avoid conflicts of interest and unfair trade practices, while ensuring full compliance with applicable anti-money laundering and corporate governance requirements.

With regard to Insurance Surveyors, their regulation has certainly evolved over the years. It is unlawful for any person to act for remuneration as a surveyor, loss adjuster or loss assessor unless such person has been licensed as such by the SECP. These licenses are only granted to companies having prescribed minimum share capital, professional indemnity insurance and persons who have been recognized as surveyors by the SECP. The Insurance Rules, 2017 together with circulars and directives issued by the SECP contain relevant provision for qualifications, testing and licensing of insurance surveyors.

It may also be mentioned at this juncture that the SECP has notified the Securities & Exchange Commission (Re-insurance Brokers) Regulations, 2021 in pursuance of its powers under Section 167 of the Insurance Ordinance 2000 providing for eligibility criteria, registration, requirements as to grant of registration, obligations and functions of reinsurance brokers, requirement of minimum paid up capital, statutory deposits, maintenance of books and records, and fitness and propriety of Chief Executive Officer and Directors of reinsurance brokers. These regulations also allow foreign reinsurance brokers to get registrations.

In Pakistan, insurance brokers are required to obtain formal registration/licensing (authorization) from the Securities and Exchange Commission of Pakistan (“SECP”) before they can legally carry on insurance brokerage business. The regime is governed primarily under the Insurance Ordinance 2000, the applicable Insurance Rules 2017 and SECP regulations.

In terms of Section 102 of the Ordinance and Rule 37 of the Insurance Rules 2017, the requirements for an insurance broker to obtain license are as under:

i. A minimum paid-up share capital of not less than fifteen million rupees;

ii. Cash or approved securities to the value of 10% of the minimum prescribed paid up capital to be desposited with the State Bank of Pakistan;

iii. Professional indemnity insurance, to a limit of thirty million rupees for any one occurrence; Provided that existing licensed insurance brokers shall comply with the requirement of professional indemnity insurance on the expiry of their active licence after coming into force of this provision;

iv. Maintenance of net equity in percentages prescribed by the SECP

Furthermore, the Chief Executive Officer and Directors of Insurance Brokers ought to comply with the fit and proper criteria devised by the SECP. This criteria judges fitness and propriety of a person across the following 4 areas: i) integrity and track record; ii) financial soundness; iii) competence and capability; and iv) conflict of interest of such person with other regulated entities under the Insurance Ordinance.

While timelines may vary depending on completeness of the application and regulatory scrutiny, in practice:

• Initial processing usually takes around 2 to 4 months, provided documentation is complete and no objections are raised.
• The timeline may extend where SECP requires clarifications, additional documents, or changes in proposed governance or capital structure.

Insurance sector is completely open to foreign ownership. However, restrictions or controls over insurers are asserted more through an eligibility, licensing and fitness regime rather than any regulation as to a shareholding cap. Local incorporation is a must as the Insurance Ordinance 2000 only permits public limited companies, whether listed or unlisted, not being subsidiaries of private limited companies, whether local or international. The SECP may only grant license upon being satisfied as to compliance with a host of requirements. One such requirement, which may prove to be a fetter or restriction over ownership and control, is the requirement of the applicant meeting the criteria for sound and prudent management contained in section 12 of the Ordinance and the Insurance Companies (Sound and Prudent Management) Regulations, 2012. This criterion is based, among other things, on i) the directors and principal officers of the applicant being fit and proper persons which includes having experience or qualifications directly related to the insurance business; and ii) conducting business with due regard to the interests of the policyholders. The Insurance Companies (Sound and Prudent Management) Regulations detail the criteria for fitness and propriety of persons intending to become directors or principal officers of an insurance across four areas: i) integrity and track record; ii) financial soundness; iii) competence and capability; and iv) conflict of interest of such person with other regulated entities under the Insurance Ordinance. Importantly, a proposed director, chief executive officer or the principal officer of the insurer requires the express approval of the SECP for their appointments. Under certain special circumstances, the SECP also retains broad powers to remove a director, chief executive officer or manager of an insurance company.

In addition to the above, the Insurance Ordinance 2000 also mandates that any proposed transaction for acquisition of a shareholding of more than 10% in an insurance company shall not proceed unless express approval is given by the SECP. As such, while eligibility to become a director or owner of an insurance company is heavily regulated, the said eligibility criteria does not distinguish between local and foreign sponsors.

The rules for insurance and reinsurance vary. In terms of section 6 of the Insurance Ordinance 2000, no person or entity can carry on insurance business in Pakistan unless the same has been registered with the Securities & Exchange Commission of Pakistan. Conducting such business without authorization is treated as an unlawful act and may attract regulatory and penal consequences.

In terms of reinsurance, there is a compulsory cessation regime in place whereby it has been set out that every insurer operating in Pakistan shall reinsure not less that 35% of its business which is in excess of: i) the insurer’s net retention, and ii) the sum insured otherwise reinsured with the Company or with any other insurer in Pakistan but excluding any part reinsured outside Pakistan, with the Pakistan Reinsurance Company Limited. In treaty reinsurance arrangements, once the above noted 35% of the business has been offered to the Pakistan Reinsurance Company Limited, the remaining and such portion which has been refused by the Pakistan Reinsurance Company Limited can be taken outside Pakistan. Such foreign reinsurance companies do not need to get themselves registered with the SECP. However, entities intending to set up a local reinsurance company must get themselves registered in the same way as an ordinary insurance company.

As explained earlier, overseas insurers must incorporate a local public limited company in order to procure registration as an insurer. As such, branch offices of overseas insurers are prohibited from transacting insurance business. For intermediaries, the regulatory regime does not distinguish between foreign and local entities. Accordingly, they are subject to the same regulatory framework as locally incorporated entities as to corporate form, minimum paid up capital and statutory deposit requirements, etc.

Yes! While the Insurance sector is completely open to foreign ownership, restrictions or controls over insurers are asserted more through an eligibility, licensing and fitness regime rather than any regulation as to a shareholding cap. Local incorporation is a must as the Insurance Ordinance 2000 only permits public limited companies, whether listed or unlisted, not being subsidiaries of private limited companies, whether local or international.

The Insurance Ordinance 2000 does not create an open-ended entitlement for foreign insurance companies to operate through branch offices. Instead, it only allowed a narrow continuation for foreign branches that were already registered and carrying on business immediately before commencement of the Insurance Ordinance. Even then, there is extremely limited and transitional recognition of branch offices of foreign insurers which must be converted into a new public company through a scheme of arrangement within 6 months.

In terms of Section 157 of the Insurance Ordinance 2000, the penalty for operating as an insurance company or transacting insurance business without registration with the Securities & Exchange Commission of Pakistan is a fine which may extend to Rs. 2 million. Furthermore, any person or entity that takes out an insurance policy from any unregistered insurer is also liable to a penalty which may extend to Rs. 500, 000/-

Operating as an insurance agent without a contract in writing has been deemed to be an offence under the Insurance Ordinance 2000, though no specific penalty has been provided. Similarly, it is unlawful for any entity to carry on the business of insurance brokerage without licensing and registration by the SECP, though no specific penalty has been provided. In the same vein, it is unlawful for any person or entity to operate as an insurance surveyor without licensing and registration by the SECP, though no specific penalty has been provided. If a corporate entity or a natural person registered as an insurance surveyor continues to act as such during the time where their license or registration has been suspended or cancelled, a penalty upto Rs. 1 Million and Rs. 100, 000/- respectively may accrue.

It may be noted at this juncture, that the SECP also has broad powers under its parent legislation to take action against such entities or persons. In particular, under the Securities & Exchange Commission of Pakistan Act 1997, should a regulated entity willfully refuse or disregard an order of the SECP to shut down its activities, the same may entail both fines and simple imprisonment for a term not exceeding 1 year.

As the insurance industry in Pakistan has evolved, so has the supervisory and enforcement environment. Generally speaking, the SECP is a rigorous and robust regulator. Initial licensing and registration are judged against stringent standards. Once licensing and registration are done, the focus shifts to reporting which forms the edifice upon which the enforcement environment is built. Once the SECP forms an initial view that a regulated entity is not forthcoming in its reporting, the SECP has broad powers to demand detailed reporting, failing which it may escalate the matter to inspection and investigation. Once it is revealed that the regulated entity is not in compliance with its obligations under the Insurance Ordinance and the applicable rules, enforcement is affected across an escalatory ladder. This may include issuing directions to the insurer and initiating show cause proceedings resulting in penalties. Finally, the matter may be taken towards suspension and/or revocation of licenses.

Solvency supervision has been structured as a continuous, conditions-based regime i.e an insurer is allowed to enter and remain in the market only so long as it maintains prescribed capital, deposits, admissible assets and solvency margins, and only so long as its reinsurance programme is structured to protect solvency on reasonable grounds. The Commission’s supervisory role is not merely periodic; it is embedded as an ongoing compliance obligation, with powers to require corrective action and to restrict dealings in assets to prevent a solvency breach.

Solvency, Deposits, Admissibility of assets, Reinsurance adequacy, and Ability to meet liabilities are explicit continuing conditions of being a registered insurer. In practical terms, the Commission supervises solvency by testing compliance against these continuing conditions and by using its intervention powers elsewhere in the Ordinance when the conditions are (or are likely to be) breached. For example, the statutory deposit is a

The statutory deposit is a practical buffer held with the State Bank of Pakistan. It is part of the solvency architecture because it is a mandated asset base and, in effect, a minimum “skin in the game” that supports policyholder protection. Requirement that such statutory deposit not be encumbered in any way or used for discharge of any liability other than liability to insurance policyholders add another solvency safeguard. Furthermore, Solvency is not measured against “any” balance-sheet assets; it is measured against admissible assets i.e., assets of acceptable quality/liquidity for prudential purposes. The SECP’s power to declare assets admissible is a key supervisory lever.

Reinsurance is treated as a solvency instrument, not merely a risk-transfer choice. Directors must form their view on reasonable grounds, and the Commission can compel modifications (with recorded reasons and a hearing), which is direct solvency supervision through the insurer’s risk-transfer architecture.

Finally, supervision is ensured through filing of statutory forms contained in the Insurance Rules, 2017. In terms of Rules 19 and 24 read with section 46 of the Insurance Ordinance 2000, both life insurers and non-life insurers are required to file statements of solvency in prescribed forms with detailed descriptions as to total assets, admissible assets, non-admissible assets, class of assets, liabilities, etc which may then be compared with other statutory filings of the insurer to maintain robust compliance.

The Insurance Rules together with notifications issued by the SECP prescribe thresholds for the Minimum paid-up capital requirement for insurers. For ready reference, these are as under:

i. Life insurer: Rs. 700 million;
ii. Non-life insurer: Rs. 500 million;
iii. Life digital-only insurer: Rs. 250 million;
iv. Non-life digital-only insurer: Rs. 100 million;
v. Life microinsurer: Rs. 150 million;
vi. Non-life microinsurer: Rs. 80 million.

Pakistan does not currently have a formalized funded Policyholder Protection Scheme. However, strong regulatory framework and specialized avenues for redressal of grievances of policyholders ensure protection of interests of policyholders. Policyholder protection in Pakistan is delivered primarily through prudential safeguards and insolvency-resolution mechanisms embedded in the Insurance Ordinance, 2000, rather than through a stand‑alone statutory “guarantee fund” of the kind seen in some jurisdictions.

The statute’s architecture protects policyholders by (i) forcing insurers to maintain deposits and solvency margins, (ii) empowering the regulator to intervene through an Administrator where policyholder interests are threatened, and (iii) giving the Court specialised winding‑up tools-especially for life business-so that policy liabilities can be insulated and, where possible, transferred as a going concern. What the Ordinance does not establish is a separate, industry-funded compensation pool that automatically pays policyholders upon insurer insolvency.

This statutory deposit is a policyholder-protection buffer: it compels every insurer to maintain a minimum amount lodged with SBP in cash/approved securities. Section 30 of the Insurance Ordinance 2000 provides explicit ring-fencing for this deposit i.e it cannot be encumbered; and is preserved, to the exclusion of general liabilities, for policyholder liabilities. In exceptional circumstances where the SECP is of the considered view that the insurer has become insolvent and continuation of the business will be prejudicial to the interests of the policyholders, the court may order winding up of the insurer. In terms of section 145 of the Ordinance, the Court can direct continuation and transfer, and the statutory fund becomes effectively insulated i.e its assets are not available for the general winding‑up pool, and its liabilities do not compete in the general distribution.

Groups are not specifically supervised nor are there any substantial provisions on treating a group of companies as one for the purposes of compliance with the provisions of the regulatory regime. However, shares or loans in relation to any one company or a group of companies are not to be included for the purposes of determination of admissible assets.

All insurers must meet the criteria for sound and prudent management contained in section 12 of the Ordinance. In terms thereof, the Insurance Companies (Sound and Prudent Management) Regulations, 2012 have been notified which detail the criteria for fitness and propriety of persons intending to become directors, chief executive officers/principal officers and “key officers of the insurer” across four areas: i) integrity and track record; ii) financial soundness; iii) competence and capability; and iv) conflict of interest of such person with other regulated entities under the Insurance Ordinance. These four areas and the benchmarks in turn have been defined in some detail in the Regulations. Key Persons include head of operations, head of accounts, head of actuarial department, head of legal department, company secretary or compliance officer, head of investments, head of audit department and heads of other departments of the insurer. Importantly, while a proposed director, chief executive officer or the principal officer of the insurer requires the express approval of the SECP for their appointments, the appointment of key officers of an insurer does not require the prior approval of the SECP. That said, the insurers have been bound to ensure that at the time of and during their appointments, key officers qualify and comply with the requirement of the Regulations.

Senior Managers, in fact any officer of the insurer, may be held personally liable under certain narrowly defined circumstances. For example, in terms of Section 42(4) of the Insurance Ordinance 2000, whosoever contravenes provisions pertaining to compulsory cessation with the Pakistan Reinsurance Company Limited may be punished with fine which may extend up to Rs. 10, 000/0 and Rs. 1,000/- for every day of default. In practice, the task of arranging reinsurance is assigned to reinsurance committees set up inside insurance companies, which consist mainly of managers and senior managers. As such, such persons can be held personally liable in terms of section 42(4). Furthermore, in terms of section 156 of the Ordinance, breaches/default in complying with the provisions of the Ordinance may entail personal penalties for any officer who was knowingly a party to such default which may extend to Rs. 1 Million. Similarly, in terms of section 158 of the Ordinance, whoever willfully makes a false statement in any material particular in submission of any document envisaged under the Ordinance can be held personally liable to pay penalty which may extend to Rs. 1 Million. Additionally, in terms of section 159 of the Ordinance, any officer who wrongly obtains possession of any property of the insurer or withholds the same may be punished with a fine which may extend to Rs. 1 Million, in default of which the said officer may also be imprisoned for a period not exceeding two years.

As explained in detail earlier, the regulatory regime does not allow for minimum or limited presence. In order to undertake insurance activities, the entity must be a public limited company incorporated in Pakistan not being a subsidiary of a private limited company. However, it ought to be noted that in terms of the amendments proposed to be introduced to the Insurance Ordinance 2000, it is expected that the insurance market will be liberalized as far as entry to foreign insurers and branch offices are concerned.

In terms of the definition of Insurance given in sub-clause (xxvii) of Section 2 of the Insurance Ordinance 2000, Insurance has been defined as “the business of entering into and carrying out policies or contracts, by whatever name called, whereby, in consideration of a premium received, a person promises to make payment to another person contingent upon the happening of an event, specified in the contract, on the happening of which the second-named person suffers loss…” Insurance contracts are contracts of indemnity. As such, the core insurance function is that of indemnification. As a necessary corollary of the above, any outsourcing whereby the core function of indemnification is not being outsourced is allowed in terms of the law.

All such activities involving acts of offer and acceptance of the insurance policies themselves and any and all claims payable to the insured against the subject policies cannot be outsourced, and so may be considered by the insurance supervisory authority in Pakistan i.e. the Securities and Exchange Commission of Pakistan. Therefore, as with many foreign jurisdictions, outsourcing by an insurer also carries strict regulation in Pakistan.

However, any other activities which are not in the nature of indemnification of a party may be legally outsourced. General communication with potential customers/policyholders, communication with regard to dealing of insured with the buyer/debtor, indirect claim management so long as the claim is not being filed directly with the outsourced party or paid directly by it appear to be permitted on account of the principle that whatever is not prohibited is allowed.

Rule 6(3) of the Insurance Rules, 2017 requires digital-only insurer applicants to disclose at registration: full particulars of all technology vendors and outsourced systems; cloud-hosting arrangements; encryption and security mechanisms; service-level agreements; results of Vulnerability Assessment and Penetration Testing; and any third-party IT audit. Post-licensing, Rule 62F requires the insurer to make all applications, algorithms and source code, proprietary or outsourced, available to the SECP for review or inspection on demand. Rule 62F(3) mandates compliance with the SECP Guidelines on Cybersecurity for the Insurance Sector, 2020, and requires each digital-only insurer to formulate a formal cybersecurity framework aligned with those Guidelines. This is the closest equivalent to a standalone operational resilience requirement currently in force.

The choice of investment for insurers in Pakistan is not directly addressed by the Insurance Ordinance in so far as the Ordinance does not regulate investment in a particular instrument. Instead, the choice for investment is determined by whether an asset will be counted for solvency and statutory compliance. Assets that are inadmissible may still exist on the balance sheet, but they do not support solvency-so holding too much of them can push an insurer into regulatory breach. Layered on top are hard requirements on paid-up capital and statutory deposits, and (for life business) statutory-fund segregation and currency matching, all of which indirectly but powerfully shape the permissible investment profile. Reinsurance then interacts with solvency by limiting how much risk relief can be recognized and by requiring reinsurance arrangements adequate to maintain solvency.

Section 32 of the Ordinance defines assets admissible for solvency purposes. Government securities and assets deposited with the State Bank of Pakistan under section 29 are automatically admissible. The SECP may declare specified assets admissible or inadmissible. Non-admissible assets include, among others, amounts due from directors and related parties and certain related-party investments prescribed under section 32(2).

The Insurance Rules together with notifications issued by the SECP prescribe thresholds for the Minimum paid-up capital requirement for insurers. For ready reference, these are as under:

vii. Life insurer: Rs. 700 million;

viii. Non-life insurer: Rs. 500 million;

ix. Life digital-only insurer: Rs. 250 million;

x. Non-life digital-only insurer: Rs. 100 million;

xi. Life microinsurer: Rs. 150 million;

xii. Non-life microinsurer: Rs. 80 million.

Furthermore, limited investment is allowed for loans secured against immovable property, units of immovable property, immovable property generally, shares in any a company or group of companies, shares of listed companies, shares of unlisted companies, term finance certificates, sukuk bonds, units in open ended mutual funds, investment in real estate investment trust, etc.

In terms of reinsurance, Section 41(1) of the Ordinance imposes a positive duty on every insurer to effect and at all times maintain reinsurance arrangements that its directors, on reasonable grounds, consider adequate to ensure continuing solvency, having regard to individual and aggregate loss exposures. Section 41(2) requires submission to the SECP of prescribed particulars of every treaty reinsurance arrangement not less than one month before it takes effect. Subsequent amendments or new treaties must be notified within one month. The SECP may, after affording the insurer an opportunity to be heard, direct modifications to any reinsurance arrangement (section 41(4)).

Section 42, read with sections 43 and 44 mandates a compulsory cessation regime in place whereby it has been set out that every insurer operating in Pakistan shall reinsure not less that 35% of its business which is in excess of: i) the insurer’s net retention, and ii) the sum insured otherwise reinsured with the Company or with any other insurer in Pakistan but excluding any part reinsured outside Pakistan, with the Pakistan Reinsurance Company Limited. In treaty reinsurance arrangements, once the above noted 35% of the business has been offered to the Pakistan Reinsurance Company Limited, the remaining and such portion which has been refused by the Pakistan Reinsurance Company Limited can be taken outside Pakistan.

The rules concerning Facultative reinsurance outside Pakistan are more onerous. Rule 18(1) prohibits any insurer from purchasing facultative reinsurance for business underwritten in Pakistan from an overseas reinsurer without prior SECP permission. Fronting, using a locally registered insurer as a pass-through to place the real risk overseas, is similarly prohibited unless expressly approved by the SECP.

Rule 62B imposes an additional obligation on digital-only insurers to maintain adequate reinsurance arrangements commensurate with their exposure, nature and volume of business, in accordance with section 41. Exposure under any single policy is capped at 5% of shareholders’ equity plus related reinsurance available under that policy (Rule 62A(3)).

As per Circular No. 24 of 2010 issued by the Insurance Division of the Securities & Exchange Commission of Pakistan, at least 80% of the total reinsurance/retakaful treaty arrangement for each class of insurance/takaful business must be placed with reinsurance/retakaful operators having “A” or above rating by “Standard & Poor’s” or equivalent rating by any other reputed international agency, and the balance 20% may be placed with reinsurers/retakaful operators having at least “BBB” rating by “Standard & Poor’s” or equivalent rating by any other reputed international agency. Reinsurance or Retakaful Treaty Arrangements with reinsurers/retakaful operators having rating below “BBB” shall not be accepted by the SECP.

It may be noted here that there has been severe criticism from international donors as well as the Competition Commission of Pakistan which has advised the government that the compulsory mandate to reinsure with Pakistan Reinsurance Company Limited ought to be abolished and the Pakistan Reinsurance Company should be privatized to allow for greater competition which will attract foreign reinsurance companies to enter the Pakistani market. That said, these changes have not yet been enacted into law.

Part XI of the Ordinance (sections 74–87) establishes the market conduct framework, applicable exclusively to direct insurance business (section 74).

Section 75 implies into every insurance contract an obligation on each party to act toward the other with the utmost good faith. Reliance on a contractual provision in breach of this duty is impermissible.

Section 76 prohibits an insurer from engaging in conduct that is misleading or deceptive. Inclusion of unusual terms limiting insurer liability without express policyholder acknowledgement constitutes misleading conduct. The SECP may levy a fine equal to the lesser of twice the policyholder’s proven loss or Rs. 10 million per breach. Section 77 requires that any contractual ambiguity be construed in favour of the policyholder. Insurers and intermediaries must use plain language in policy documentation.

Section 83 empowers the SECP to make market conduct rules that operate as implied conditions of every relevant contract. The SECP may conduct compliance visits to insurer and intermediary offices (section 84) and may require independent surveys of specified claims classes at the insurer’s expense (section 85).

Rule 62G requires digital-only insurers to disclose all key policy facts, risk insured, sum insured, benefits, premium, free-look period and coverage period, to the prospective policyholder before any offer is made.

Pakistan operates a substantially closed market for direct insurance. Section 5 of the Ordinance restricts the carrying on of insurance business in Pakistan to companies incorporated in Pakistan. A foreign investor wishing to enter the market must incorporate or acquire a locally registered insurer and obtain SECP registration under section 6 of the Ordinance.

The 2022 amendments to the Rules introduced a formal digital-only insurer license (Rule 62A), enabling a registered insurer to conduct all distribution through digital channels without a branch network, provided it maintains a physical place of business in Pakistan (Rule 62L). Such an insurer is nonetheless a locally registered entity. No framework permits a foreign-based insurer to market directly into Pakistan by digital means without local registration.

Using a locally licensed insurer as a nominal front to place the substantive risk offshore is prohibited unless the SECP has expressly approved the arrangement.

It may also be mentioned at this juncture that in terms of the amendments sought to be introduced, there is a plan to liberalize the insurance market by allowing foreign insurers and reinsurers to operate through branch structures.

The Ordinance provides a layered statutory consumer protection regime. Key protections include:

• Utmost good faith obligation binding on both parties (section 75).
• Prohibition on misleading or deceptive conduct; compensation for policyholder loss caused by insurer or agent misrepresentation (section 76).
• Ambiguities construed in favour of the policyholder; plain language obligation on insurers and intermediaries (section 77).
• Provisions of the Ordinance cannot be contracted out of; any such exclusion is void and constitutes an offence (section 78).
• Payment of liquidated damages on late settlement of claims (section 118).

 Small Disputes Resolution Committees:  Section 117 constitutes statutory Committees with jurisdiction over disputes under personal life, domestic property, and private motor insurance policies.

Insurance Ombudsman:  Sections 125–133 establish the Insurance Ombudsman, appointed by the Federal Government. The Ombudsman investigates complaints of maladministration against insurers, including decisions contrary to law, arbitrary conduct, and undue delay. A complainant must first serve written notice on the insurer; if unsatisfied within one month, a complaint may be filed within a further three-month window. The Ombudsman may direct the insurer to reconsider, modify or cancel a decision, or to pay compensation.

Insurance Tribunal: The Insurance Tribunal has exclusive jurisdiction to try offences under the Ordinance and to adjudicate disputes between insurers and policyholders. Appeals from Tribunal decisions lie to the High Court. The Tribunal is empowered to award compensation and to make such orders as are necessary to give effect to its decisions. (Part XV of the Ordinance)

In terms of the applicable regulatory regime, a layered system of possible interventions has been put in place: early supervisory directions to prevent deterioration, management-and-control substitution through an Administrator where policyholder interests require it, and then a specialised winding-up framework (including continuation/transfer of life business) where insolvency or prejudice to policyholders warrants formal liquidation. The design is explicitly policyholder-centric: regulatory triggers, Court powers, and asset ring-fencing mechanisms are all oriented to maintaining contractual performance where feasible and maximizing protection where failure becomes inevitable.

In terms of sections 60 to 63, the SECP has been granted powers to issue directions to insurers with a view to safeguard the interests of insurance policyholders where there is a reasonable apprehension that the insurer has failed or is about to fail to comply with the conditions of registration. The SECP may ask an insurer to formulate and implement a plan of action to rectify or prevent any contravention of the conditions of registration. The SECP may also give directions to cease entering into new contracts of insurance. These measures provide early stage resolution levers, providing for regulation of risk taking, stablilizing the balance sheet and protecting policyholders from the effects of bad decisions by insurers.

Furthermore, the Ordinance contains an Administrator regime (sections 135–142) designed for situations where the insurer’s management cannot be relied upon to protect policyholders. The Administrator takes over management of the insurance business, with coercive powers and legal protections to ensure decisive action. The Administrator holds extensive powers over assets and contracts, including power to cancel contracts and agreements (section 138).

Part XVIII (sections 143–153) establishes a specialist insurance winding-up regime. The court may: order continuation of life insurance business during winding-up (section 145); appoint a special manager (section 146) and an independent actuary (section 147); and reduce life insurance contracts to the extent necessary to enable rehabilitation (section 148). The SECP is entitled to notice and participation in all winding-up proceedings (sections 150–151). Statutory fund assets of a life insurer are ring-fenced and applied exclusively for the benefit of the relevant policyholders in priority (section 153).

Pakistan’s superior courts, the provincial High Courts and the Supreme Court, are competent and experienced in complex commercial disputes, including insurance matters. The Insurance Tribunal established under Part XV of the Ordinance has dedicated statutory jurisdiction over insurance disputes.

The principal practical challenge is delay. Commercial litigation before the civil courts, governed by the Code of Civil Procedure, 1908, can take several years to resolve. Specialist forums, including Banking Courts and the Insurance Tribunal, offer more focused adjudication. Practitioners commonly advise arbitration clauses in commercial insurance contracts to mitigate delay risk.

Alternative Dispute Resolution, as a practical reality, has come a long way in Pakistan. Other than the Alternative Dispute Resolution Act of 2017 and certain fiscal statutes, ADR is not mandated, though overwhelming preponderance of judicial opinions in the last 5 to 7 years makes it clear that it is preferred. While the main reason for the recent uptick in ADR may be directly related to the growing backlog of cases, it is also preferred by parties to highly specialized and complex disputes in certain practice areas. Even though certain amendments to the procedural law encourage and facilitate ADR, it is not mandated as a universal compulsory step in every civil suit or proceeding. Discretionary power has been conferred upon civil courts to adopt ADR methods only with the consent of the parties.

The Alternative Dispute Resolution Act, 2017 is in many ways a model law which may be replicated and built upon by the provinces. This law establishes a comprehensive ADR mechanism for the Islamabad Capital Territory and treats ADR as a mainstream alternative to court proceedings rather than a purely voluntary process.

The law provides for a statutory transfer mechanism for insurance portfolios for insurers. However, the process is different for life and non-life insurers. Section 67 is the clearest statutory “gatekeeper” for transactions that effectively move control or a material slice of non-life business in Pakistan, while Sections 68–69 provide the dedicated Court-sanctioned scheme for life portfolios.

If the deal is structured as an acquisition of a non-life portfolio in Pakistan exceeding the statutory threshold (>10%)—measured either by premium income or by the specified liability metrics—it cannot proceed without SECP approval. This is the statutory route that captures portfolio deals even when they are not share acquisitions (e.g., transfer of a segment, line, or branch of business).

The transferor applies to SECP in the prescribed form with prescribed documents; SECP can seek additional information within 15 days; the applicant must respond within 7 days (or a later period requested in writing). SECP has an overall 60-day decision window (running from receipt of the application or additional material). If SECP neither approves nor issues a refusal notice within that window, approval is deemed.

For life insurance business, the Ordinance uses a formal scheme that must be sanctioned by the Court. This is the classic statutory “portfolio transfer” model: a structured scheme, regulatory notice, member/policyholder transparency, and judicial sanction. A scheme is prepared (setting out the transfer agreement and implementation provisions). At least 60 days before approaching the Court, notice (with reasons and nature of transfer) is sent to the SECP. Thereafter, specified documents including actuarial and independent actuarial reports are furnished to the SECP and kept available for inspection by members and policyholders during the notice period. After that, an application is made to the competent Court for sanction. Once the process is complete, only then can the life book be transferred/amalgamated.

As pointed out earlier, restrictions or controls over insurers asserted through an eligibility, licensing and fitness regime may be challenging for new market entrants. Local incorporation is a must as the Insurance Ordinance 2000 only permits local public limited companies, whether listed or unlisted, not being subsidiaries of private limited companies, whether local or international, to be eligible for registration. The SECP may only grant license upon being satisfied as to compliance with a host of requirements. One such requirement, which may prove to be a fetter for new entrants is the requirement of the applicant meeting the criteria for sound and prudent management contained in section 12 of the Ordinance and the Insurance Companies (Sound and Prudent Management) Regulations, 2012.

Over and above, the primary structural challenges for new entrants are:

• Section 166 of the Ordinance grants the National Insurance Company Limited (NICL) exclusive rights to underwrite all public-sector non-life risks.
• Rule 18(1) requires SECP permission to place facultative reinsurance offshore.
• Conventional insurer thresholds (Rs. 700 million for life, Rs. 500 million for non-life) are relevant, though lower thresholds apply for digital-only and microinsurer categories.
• Insurance penetration remains among the lowest in the region, with insurance infrastructure and consumer awareness concentrated in major urban centres

Regulatory posture

The SECP has demonstrated active support for new market entrants through the 2022 amendments to the Rules, which introduced the digital-only insurer and microinsurer frameworks with materially reduced capital thresholds, creating a deliberate regulatory pathway for technology-driven and inclusive insurance models.

Pakistan’s insurance market is increasingly being shaped by digital innovation, with technology-driven distribution models gaining ground across motor, health, and microinsurance lines. The SECP has responded with a supportive regulatory framework, introducing a dedicated digital-only insurer licence category and actively encouraging the integration of insurance platforms with digital payment and identity verification infrastructure. Embedded insurance distributed through fintech and e-commerce channels is an emerging model, and the expanding reach of mobile networks is expected to bring previously uninsured segments of the population into the formal insurance market.

The SECP has taken an actively supportive stance toward digital insurance, creating a aforementioned regulatory pathway for digital-only insurers under the 2022 amendments to the Rules. The framework pairs concessions, including reduced minimum capital and solvency requirements, and permission to store all customer documents digitally, with additional safeguard obligations, namely: mandatory compliance with the SECP cybersecurity guidelines; pre-sale disclosure of all key policy facts; round-the-clock customer support; SECP access to all cyber data on demand; and maintenance of a physical place of business in Pakistan notwithstanding fully digital operations.

Pakistan does not currently have a sector-specific data protection statute for insurance. The operative framework is as follows.

Prevention of Electronic Crimes Act, 2016 (PECA):  PECA is the primary legislation governing data-related offences, including unauthorised access and data interception. However, it does not address data controller obligations in the manner of a general data protection law.

Insurance-specific obligations:  The Rules require digital-only insurers to comply with SECP (AML/CFT) Regulations, 2020, including customer identification, ongoing due diligence, and screening against proscribed persons lists. The SECP Cybersecurity Guidelines, 2020 impose baseline data security obligations on all insurers within their scope.

There are currently no sector-specific statutory restrictions on cross-border transfer of insurance customer data beyond general PECA provisions and AML/CFT obligations.

Environment, Social and Governance (ESG) regulation in Pakistan has moved from voluntary to mandatory disclosure for listed companies, with listed insurers of sufficient size now within scope.

On 31 December 2024, the SECP mandated phased application of IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures) to all listed companies.

In December 2025, the SECP issued revised ESG Disclosure Guidelines aligned with the Pakistan Green Taxonomy (PGT), requiring listed companies to disclose climate-related risks, opportunities, and activity-level data consistent with the PGT. Mandatory reporting under these Guidelines is expected from 2029; disclosures are voluntary until that date.

There are no insurance-specific climate risk management or stress-testing requirements currently in force comparable to those of the United Kingdom or the European Union. The SECP’s guidance increasingly references climate risk as a component of prudential governance.

There is no dedicated diversity and inclusion legislation applicable specifically to (re)insurers in Pakistan. The applicable framework consists of the following.

Listed Companies (Code of Corporate Governance) Regulations, 2019: The Regulations require listed insurers to adopt and disclose a board diversity policy on a comply-or-explain basis. They encourage, but do not mandate, the appointment of female directors.

ESG social dimension.  The SECP’s ESG Disclosure Guidelines include workforce diversity reporting as a component of the social (S) pillar. As disclosure obligations become mandatory from 2029, insurers within scope will be required to report diversity metrics.

No mandatory gender pay gap reporting, minimum gender representation requirements, or sector-specific inclusion targets are currently imposed on insurers by statute or regulation.

Pakistan’s insurance market is at an early stage of development but current regulatory reforms point toward sustained growth over the next few years. The segments most likely to lead are the following:

Family Takaful: With a Muslim-majority population and strong cultural preference for Shariah-compliant products, Family Takaful is the dominant growth engine. Pakistan’s Takaful operators are supported by a defined SECP regulatory framework encompassing window Takaful and re-Takaful arrangements.

 Digital-only insurance: The 2022 digital-only insurer framework and the issuance of Pakistan’s first such licence in 2025 mark the transition of Insurance-Tech from concept to regulated reality. With high mobile penetration and the SECP actively facilitating digital distribution models, digital-only insurers are well positioned to drive growth across motor, health, and microinsurance lines.

 Health insurance: Private health insurance remains significantly underpenetrated relative to need, against a constitutional right to healthcare and high levels of out-of-pocket medical expenditure. Government health schemes such as the ‘Sehat Sahulat Program’ are raising public awareness and establishing baseline infrastructure on which private insurers can build.

 Microinsurance: A large low-income population represents a vast addressable market for affordable inclusive products. The microinsurer registration pathway, with reduced capital thresholds and simplified KYC are catalysts for scalable growth.

 Cyber insurance: With the rise in cyber threats, there is a growing interest in cyber insurance policies. Consequently, these policies provide coverage for data breaches, cyberattacks, and related liabilities. Businesses are increasingly recognising the importance of protecting themselves against cyber risks. Furthermore, owing to the cross-jurisdictional nature of multinational companies, cyber insurance covering risks associated with personal and proprietary data protection and ransomware is a budding trend.