The State Bank of Pakistan (SBP) has decided to allow resident insurance companies to issue US Dollar denominated insurance policies to meet the condition of foreign lenders giving out foreign currency loans for the projects undertaken in Pakistan.
The decision was taken in light of the bilateral agreement between Government of Pakistan and a foreign country/multilateral agency.
Accordingly, an insurance company intending to issue a US Dollar denominated insurance policy will submit an application for prior approval to the Director Exchange Policy Department, State Bank of Pakistan Karachi, through an authorized dealer along with an explicit recommendation letter from the Securities & Exchange Commission of Pakistan (SECP) for each proposal.
The insurance policy document/instrument issued by the resident insurance company to the concerned client must disclose these clauses:
- The insurance company will receive the premium from the applicant only in equivalent PKR.
- The payment of claim to the resident company will be made in equivalent PKR, wherever applicable.
- The insurance company will have the option to get reinsurance from any foreign reinsurer, upto 99% of the sum assured.
- The payment of reinsurance premium by the insurance company will be subject to observance of all applicable rules and regulations.
- The reinsurance claims, to the extent of outstanding liability related to the foreign loans, may be paid directly to the foreign lenders by re-insurers.
- The remaining amount of reinsurance claim will, however, be repatriated into Pakistan and paid to the claimant in equivalent PKR.
Earlier on Foreign Exchange Manual, SBP instructed insurance companies that insurance cover on non-marine risks (excluding life) inside Pakistan can be issued in Rupees only.
Insurance cover on assets outside Pakistan owned by residents of Pakistan, can be issued in Rupees or in the currency of the country in which the assets are situated. Insurance cover in respect of personal baggage and valuables in transit of Pakistan nationals can be issued in Rupees only.
Regarding foreign nationals, such insurance covers can be written in Rupees or foreign currencies. However, in cases where foreign currency policies are issued to foreign nationals, premia thereon can be collected in foreign exchange only.