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PART IV

REQUIREMENTS AS TO CAPITAL AND STATUTORY DEPOSITS

28.                  Requirements as to capital.-(l)..An insurer registered under this

Ordinance to carry on insurance business shall have a paid-up capital of not less than the required minimum amount.

(2)           For the purposes of this section, the required minimum amount is:

(a)         one hundred and fifty million rupees, or such higher
amount as may be prescribed by the Federal Government,
for an insurer carrying on life insurance business; and

(b)         eighty million rupees, or such higher amount as may be
prescribed by the Federal Government, for an insurer
carrying on non-life insurance business;

Provided that in respect of clause (a), for an insurer authorised to carry on life insurance business on the commencement date the required minimum amount shall not be less than one hundred million rupees by 31kt December 2002 and one hundred and fifty million rupees or such higher amount as may be prescribed by 31st December 2004.

Provided further that in respect of clause (b), for an insurer authorised to carry on non-life insurance business on the commencement date the required minimum amount shall not be less than fifty million rupees by 31st December 2002 and eighty million rupees or such higher amount as may be prescribed by 31st December 2004.

Provided further that in respect of both clause (a) and clause (b), for the period until 31st December 2002, for an insurer authorised to carry on insurance business on the commencement date the required minimum amount shall be that set out in section 6 of the repealed Act.

(3)           An insurer, not having a share capital, shall not be required to comply
with this section.

29.                  Deposits.-(l)..Every insurer shall, in respect of the insurance business

carried on by him in Pakistan, deposit and keep deposited with the State


Bank of Pakistan, in one of the offices in Pakistan of the State Bank of Pakistan for and on behalf of the Federal Government the required minimum amount specified in sub-section (2), either in cash or in approved securities estimated at the market value of the securities on the day of deposit, or partly in cash and partly in approved securities so estimated.

(2)           For the purposes of this section the required minimum amount is, either:

(a)    the higher often million rupees and ten per cent. (10%) of
the insurer's paid-up capital; or

(b)    such amount as may be prescribed by the Commission:
Provided that the Commission may, subject to achievement of

levels of solvency as required by this Ordinance, abolish the requirement for deposits specified by this section by reducing the required minimum amount to zero.

(3)                             A deposit made in cash shall be held by the State Bank of Pakistan to
the credit of the insurer and shall except to the extent, if any, to which the
cash has been invested in securities under sub-section (5), be returnable
to the insurer in cash in any case in which, under the provisions of this
Ordinance, a deposit is to be returned; and any profit or return
(howsoever called or designated) accruing due and collected on securities
deposited under sub-section (1) shall be paid to the insurer, subject only
to deduction of the normal commission chargeable for the realisation of
profit or return (however called or designated).

(4)                             The insurer may at any time replace any securities deposited by him
under this section with the State Bank of Pakistan either by cash or by
other approved securities or partly by cash and partly by other approved
securities provided that such cash, or the value of such other approved
securities estimated at the market rates prevailing at the time of
replacement, or such cash together with such value, as the case may be, is
not less than the value of the securities replaced estimated at the market
rates prevailing when they were deposited.

(5)           The State Bank of Pakistan shall, if so requested by the insurer:

(a)         sell any securities deposited by him with the Bank under
this section and hold the cash realised by such sale as
deposit, or

(b)        invest in approved securities specified by the insurer the
whole or any part of a deposit held by it in cash or the
whole or any part of cash received by it on the sale of or on
the maturing of securities in which investment is so made
as deposit, and may charge the normal commission on such
sale or on such investment.

(6)           Where sub-section (5) applies, if the cash realised by the sale of or on
the maturing of the securities (excluding, in the former case, the profit or
return (however called or described) accrued) falls short of the market
value of the securities at the date on which they were deposited with the
Bank, the insurer shall make good the deficiency by a further deposit
either in cash or in approved securities estimated at the market value of
the securities on the day on which they are deposited, or partly in cash
and partly in approved securities so estimated, within a period of two
months from the date on which the securities matured or were sold and,
unless he does so. the insurer shall be deemed to have failed to comply
with the requirements of this section as to deposits.

(7)           If any part of a deposit made under this section is used in the
discharge of any liability of the insurer, the insurer shall deposit such


additional sum in cash or approved securities estimated at the market value of the securities on the day of deposit, or partly in cash and partly in such securities, as will make up the amount so used. The insurer shall be deemed to have failed to comply with the requirements of sub-section (1), unless the deficiency is supplied within a period of two months from the date when the deposit or any part thereof is so used for discharge of liabilities.

(8)           The market value on the day of deposit of securities deposited in

pursuance of any of the provisions of this Ordinance with the State Bank of Pakistan shall be determined by the State Bank of Pakistan whose decision shall be final.

30.                  Reservation of deposits.-(l)..Any deposit made under section 29 shall be

deemed to be part of the assets of the insurer but shall not be the subject of any encumbrance; nor shall it be available for the discharge of any liability of the insurer other than liabilities arising out of policies of insurance issued by the insurer, so long as any such liabilities remain undischarged; nor shall it be liable to attachment in execution of any decree except a decree obtained by a policy holder of the insurer in respect of a debt due upon a policy which debt the policy holder has failed to realise in any other way.

(2)                      Where a deposit is made in respect of life insurance business the deposit
made in respect thereof shall be deemed to be a part of the assets of the
shareholders' fund.

(3)                      A deposit which, at the commencement date, was, under the repealed Act,
an asset of a life insurance fund established under that Act, shall, on or
before the date of conversion of that fund under section 25 be transferred
to the shareholders' fund against receipt of the full value of the deposit.

(4)                      In this section the term 'full value of the deposit' means the cash or the
market value of other assets forming the deposit, as certified by the State
Bank of Pakistan.

(5)                      For the period from the commencement date and until 31st December
2001, no insurer which was carrying on life insurance business on the
commencement date or which succeeds to an insurer which was carrying
on life insurance business on the effective date shall be regarded as being
in contravention of the Ordinance by reason only that the statutory
deposit required by this Part to be made in the shareholders' fund has not
been made either in part or in full, provided that the sum of the statutory
deposit which has been made in the shareholders' fund and the statutory
deposit which was made in the life insurance fund under the repealed Act
and continues to exist as at the relevant date is equal to or greater than the
amount required by this Part to be made as a statutory deposit by the

31.                  Refund of deposits.- An insurer may at any time apply to the

Commission for consent to return of such portion of the deposit as is in excess of any amount which the insurer is required under this Ordinance to keep deposited, and such consent shall not be unreasonably withheld.

PART V SOLVENCY REQUIREMENTS


32.                  Admissible Assets.- (1) For the purposes of this Part, the following are

admissible assets:

(a)         Government securities except to the extent that they are
subject to any encumbrance;

(b)        assets deposited with the State Bank of Pakistan under
section 29; and

(c)         assets, other than assets referred to in clause (a) or clause
(b), not specified in sub-section (2) not to be admissible
assets; and

(c)       assets, being assets referred to in clause (g) of sub-section (2), in respect of which the Commission has declared that those assets are to be admissible for the purposes of this Part.

(2)           For the purposes of this Part, subject to sub-section (1), the following are

not admissible assets:

(a)         in a statutory fund of a life insurer, a loan to, capital
transfer to or other interest in the shareholders' fund of the
life insurer;

(b)        in a statutory fund of a life insurer, any asset to the extent
that it exceeds such percentage as may be prescribed by the
Commission of the value of the fund (being the market
value of assets less liabilities other than policyholder
liabilities);

(c)         in the shareholders' fund of a life insurer, a loan to, capital
transfer to or other interest in a statutory fund of the life
insurer;

(d)        loans (not being loans secured against life insurance
policies) to directors, shareholders, agents or employees of
the insurer, and accrued profit or return (however called or
described) thereon:

Provided that a person holding less than one per cent, of the shares of the insurer shall not be considered to be a shareholder for the purposes of this clause.

Provided, further, that a loan and accrued profit or return (however called or described) thereon to an employee of an insurer, not being a director of the insurer, shall not be inadmissible by virtue only of the operation of this clause, to the extent that the loan is secured against immovable property.

(e)         loans to life insurance policyholders of the insurer, to the
extent that these, together with accrued profit or return
(however called or described) thereon, exceed the surrender
value of the policies against which they are secured;

(f)                      loans which are secured against immovable property, to the
extent that they exceed, in the aggregate, such percentage
as may be prescribed by the Commission of the insurer's
total investments or, in the case of a life insurer, such
percentage as may be prescribed by the Commission of the
total investments of the relevant statutory fund or
shareholders' fund;

(g)        balances with, shares in, loans to or other amounts due
from any body that is related to the insurer or to any


director of the insurer;

(h)      premiums due and payable to the insurer but not paid for more than three months from the date due and payable;

Provided that in the case of a life insurer a premium which has not been paid shall be deemed to have been paid to the extent that the provisions of clause (b) of sub-section (4) of section 93 have been applied in respect of that premium;

(i)       intangible assets, including but not limited to goodwill, brand names and capitalised establishment costs;

(j)       deferred tax asset balances;

(k)      amounts available to the insurer under guarantees;

(1)       assets subject to encumbrances;

(m)     unpaid share capital;

(n)      any unit of immovable property, to the extent that it exceeds such percentage as may be prescribed by the Commission of the insurer's total investments or, in the case of a life insurer, such percentage as may be prescribed by the Commission of the total investments of the relevant statutory fund or shareholders' fund;

(o)      immovable property, to the extent that it exceeds in total such percentage as may be prescribed by the Commission of the insurer's total investments or, in the case of a life insurer, such percentage as may be prescribed by the Commission of the total investments of the relevant statutory fund or shareholders' fund;

(p)       shares in any one company or group of related companies, to the extent that they exceed such percentage as may be prescribed by the Commission of the insurer's total investments or, in the case of a life insurer, such percentage as may be prescribed by the Commission of the total investments of the relevant statutory fund or shareholders' fund;

(q)      shares of listed companies, to the extent that they exceed, in the aggregate, such percentage as may be prescribed by the Commission of the insurer's total investments or, in the case of a life insurer, such percentage as may be prescribed by the Commission of the total investments of the relevant statutory fund or shareholders' fund;

(r)       shares of companies (not being listed companies), to the extent that they exceed, in the aggregate, such percentage as may be prescribed by the Commission of the insurer's total investments or, in the case of a life insurer, such percentage as may be prescribed by the Commission of the total investments of the relevant statutory fund or shareholders' fund;

(s)      immovable property and shares in the aggregate, to the extent that they exceed such percentage as may be prescribed by the Commission of the insurer's total investments or, in the case of a life insurer, such percentage as may be prescribed by the Commission of the total investments of the relevant statutory fund or shareholders' fund;

(t)       loans to any person or group of related persons, to the extent that they exceed such percentage as may be prescribed by the Commission of the insurer's total investments or, in the case of a life insurer, such percentage as may be prescribed by the Commission of the total investments of the relevant statutory fund or shareholders'


fund; (u)      (i)       vehicles;

(ii)      office equipment and

(iii)     fixtures and fittings which are not immovable

property;

such assets as the Commission may prescribe; and

assets which are declared by the Commission, pursuant to

sub-section (9), not to be admissible assets of an insurer or

of a life insurance statutory fund maintained by an insurer.

(3)                              The Commission may, in prescribing matters referred to in sub­
section (2), make separate prescription in respect of insurers carrying on
life insurance business and those carrying on non-life insurance business;
and within the category of life insurance business may make separate
prescription in respect of statutory funds which are required by this
Ordinance to be established for the conduct of a particular category of life
insurance business.

(4)                              For the purposes of this section, the provisions of clauses (p), (q) and
(r) of sub-section (2) shall extend mutatis mutandis to investments made
in shares (or equity securities by whatever name called) of a body
corporate incorporated in a jurisdiction other than Pakistan.

(5)           For the purposes of this section, immovable property is a "unit" where
it is the smallest discrete parcel of immovable property, consisting of land
or buildings and structures constructed thereon or both, owned by an
insurer and is capable of being lawfully the subject of a transfer or other
disposition of the whole of the legal and beneficial interest, without the
necessity for any consent, licence, permit or approval from any
governmental authority to divide or sub-divide the parcel in order to
transfer or otherwise make a disposition of the whole of the legal and
beneficial interest therein.

(6)                      In this section, "investments" includes all forms of shares, debentures,
bonds, deposits and other securities and derivative instruments, and
includes immovable property whether or not occupied by the insurer.

(7)                      For the purposes of this section, two or more persons are "related" if they
are under common control, or if they are connected by an ownership
interest of more than 49% or, if they are natural persons, they are
members of the same family.

(8)                      A declaration by the Commission under clause (d) of sub-section (1):

 

(a)         may be made on the application of the insurer;

(b)        shall be made in writing to the insurer;

(c)         shall not be made unless the Commission believes on
reasonable grounds, having regard to the circumstances of
the insurer, the interests of policyholders of the insurer, the
nature of the assets in respect of which the application is
made and the nature of the other assets and the liabilities of
the insurer, that:

(i)       such a declaration will not adversely affect the

ability of the insurer to meet its liabilities, including policyholder liabilities, as they fall due;

(ii)      such a declaration is not inconsistent with the

principles of sound and prudent management of the insurer set out in section 12; and

(iii)     such a declaration ought to be made;

(d)    may be made in respect of the whole of the assets in respect


of which application is made, or of such part thereof as the Commission may direct;

(e)         shall be made subject to such conditions as the
Commission may direct;

(f)                       shall have effect not more than three months from the date
of such declaration; and

(g)         shall remain in force for a period of not more than twelve
months from the date at which the declaration has effect,
unless revoked in writing by the Commission before the
expiry of that time.

(9)           A declaration by the Commission under clause (w) of sub-section (2):

(a)         shall be made in writing to the insurer;

(b)         shall not be made unless the Commission believes on
reasonable grounds, having regard to the circumstances of
the insurer, the nature of the assets and the nature of the
other assets and the liabilities of the insurer, and after
giving the insurer a chance to be heard, that the assets
should be declared not to be admissible assets of that
insurer or of a life insurance statutory fund of that insurer;

(c)         shall have effect not less than three months from the date of
such declaration; and

(d)         shall continue until it is revoked in writing by the
Commission.

33.                  Assets and liabilities in Pakistan.- (1) For the purposes of this Part, an

asset is an asset in Pakistan if-

(a)         it is immovable property situated in Pakistan;

(b)         it is movable property (other than money, debts or other
actionable claims) physically located in Pakistan and
owned by and in the possession of a person resident in
Pakistan and no person (other than the owner thereof) has
any better right to possession thereof whether by virtue of
an encumbrance or otherwise and is lawfully entitled to
take it out of Pakistan or remove it from Pakistan;

(c)         it is money or a debt or an actionable claim denominated or
payable only in rupees in Pakistan; or

(d)         it is money or a debt or an actionable claim denominated or
payable in a currency other than rupees in respect of which
any person has a right to sue and recover the same by
proceedings in Pakistan or it is required by law to be
received in Pakistan by or is payable to a person resident in
Pakistan.

(2)           For the purposes of this Part, where a liability is undertaken by a person

under:

(a)    a contract of insurance made in Pakistan or in respect of
which a proposal was accepted or a policy issued in
Pakistan, not being a contract

(i)        that relates only to a liability contingent upon an event that can happen only outside Pakistan, not being a liability that the person has undertaken to satisfy in Pakistan; or

(ii)      where the person carries on insurance business both in and outside Pakistan, that relates only to a liability that the person has undertaken to satisfy outside Pakistan; or

(b)    a contract of insurance made outside Pakistan or in respect


of which a proposal was accepted or a policy issued outside Pakistan where any part of the negotiations or arrangements leading to the making of the contract, to the acceptance of the proposal or to the issue of the policy took place or were made in Pakistan, being a contract (i)       that relates to a liability contingent upon an event

that can happen only in Pakistan; or

(ii)      where the person carries on insurance business both in and outside Pakistan, that relates to a liability that the person has undertaken to satisfy in Pakistan; that liability is a liability in Pakistan.

34.                  Valuation of assets and liabilities.- (1) For the purposes of this Part,

assets and liabilities shall, subject to sub-section (2), be valued in accordance with such accounting rules as may be prescribed by the Commission.

(2)           For the purposes of this Part, as at any date (the "balance date") to which
a statement of assets and liabilities (however called or described) is made
up:

(a)         no asset of an insurer shall be valued at more than the
amount, net of transaction costs incurred by the transferor,
at which it could be transferred in an orderly market in a
transaction between two willing but not anxious parties;

(b)        no liability of an insurer, not being a policyholder liability,
shall be valued at less than the amount, including
transaction costs incurred by the transferor, at which it
could be transferred in an orderly market in a transaction
between two willing but not anxious parties;

(c)         the liability for outstanding claims of a non-life insurer
shall not be valued at less than the expected settlement cost,
including settlement expenses, of all claims incurred by the
insurer but not paid as at the balance date, whether or not
those claims have been reported to the insurer as at that
date, and including prudent but reasonable provision for
adverse development in that expected settlement cost after
balance date; and

(d)        the liability for unexpired risk of a non-life insurer shall not
be valued at less than the sum of the unearned premium
reserve and the premium deficiency reserve, where:

(i)       the unearned premium reserve is the unexpired

portion of the premium which relates to business in force at the balance date; and

(ii)      the premium deficiency reserve is the amount if any by which the expected settlement cost, including settlement expenses but after deduction of expected reinsurance recoveries, of claims expected to be incurred after the balance date in respect of policies in force at the balance date, exceeds the unearned premium reserve.

(3)           The Commission may prescribe guidelines for the estimation of amounts
set out in sub-section (2).

35.                   Net admissible assets of life insurers.- (1) A life insurer shall at all

times maintain in its shareholders' fund a surplus of admissible assets in Pakistan over liabilities in Pakistan of not less than the required minimum


amount.

(2)           For the purposes of the preceding sub-section, the required minimum
amount is seventy-five million rupees or such higher amount as may be
prescribed:

Provided that for the period from the commencement date and until 31st December 2004, in respect of an insurer which is authorised to carry on insurance business on the commencement date, this sub-section shall apply as if the amount of seventy-five million rupees specified therein shall be substituted by the amount of thirty million rupees.

(3)                      A life insurer shall, in each statutory fund maintained by it for the
conduct of business other than investment-linked business, maintain at all
times a surplus of admissible assets in Pakistan over liabilities in
Pakistan, other than policyholder liabilities, equal to or greater than the
amount of policyholder liabilities calculated in accordance with such
principles as may be prescribed by the Commission.

(4)                      A life insurer shall, in each statutory fund maintained by it for the
conduct of investment-linked business, maintain at all times a surplus of
admissible assets in Pakistan over liabilities in Pakistan, other than
policyholder liabilities, equal to or greater than a sum calculated in
accordance with such principles as may be prescribed by the
Commission.

(5)                      A life insurer shall, in each statutory fund maintained by it, maintain at
all times, in each currency in which the policy liabilities of that statutory
fund are denominated, a surplus of admissible assets denominated in such
currency over liabilities including policyholder liabilities denominated in
such currency, in an amount to be determined in accordance with such
provisions in this respect as the Commission shall prescribe.

 

(6)                      Where a life insurer has issued policies the benefits under which are
payable in a currency other than Pakistan Rupees, securities denominated
in that currency and issued and guaranteed as to principal and profit or
return (however called or designated) by the Government of the country
in whose currency such benefits are expressed, shall be deemed for the
purposes of this section to be admissible assets of a statutory fund to
which such policies are referable.

(7)                      The Federal Government may prescribe a percentage or percentages of
the assets of the shareholders' fund of a life insurer, or of a statutory fund
of a life insurer, other than a statutory fund which contains only
investment-linked policies, which shall be invested in Government
securities, or in a combination of Government securities and other
approved securities.

(8)                      The aggregate of percentages prescribed under sub-section (7) shall not
exceed forty per cent.

36.                  Insurers of non-life insurance business to have assets in excess of

minimum solvency requirement.- (1) An insurer registered under this Ordinance to carry on non-life insurance business shall at all times have admissible assets in Pakistan in excess of its liabilities in Pakistan of an amount greater than or equal to the minimum solvency requirement.


(2)                      An insurer incorporated in Pakistan and registered under this Ordinance
to carry on non-life insurance shall at all times have admissible assets in
excess of its liabilities of an amount greater than or equal to the minimum
solvency requirement.

(3)                      For the purposes of this section, the minimum solvency requirement is
the greatest of:

 

(a)         such required minimum amount as may be prescribed by
the Commission;

(b)         such percentage as may be prescribed by the Commission
of its earned premium revenue in the preceding twelve
months, net of reinsurance expense subject to a maximum
deduction for reinsurance of fifty per cent of the gross
figure; and

(c)         such percentage as may be prescribed by the Commission
of the sum of its liability for unexpired risk and its liability
for outstanding claims, net of reinsurance subject to a
maximum deduction for reinsurance in each case of fifty
per cent of the gross figure:

Provided that in the case of an insurer incorporated in a jurisdiction outside Pakistan the amounts set out in clauses (b) and (c) of this sub-section shall be calculated with reference to the earned premium revenue, unexpired risk liability and outstanding claims liability and related reinsurance balances of that insurer in respect of its insurance business in Pakistan only.

(4)           The Commission may direct an insurer not to deal with any specified
asset for any specified period of time in order to ensure compliance by
the insurer with the provisions of this Part.

37.                  Prohibition of loan.- (1) No insurer shall grant to, or to any member of

the family of, any director, chief executive, appointed actuary, or auditor of the insurer any loan or temporary advance, whether secured by an encumbrance of property or otherwise except a loan, secured by a life policy issued by the insurer, of not more than eighty per cent, of the surrender value of that policy.

(2)           Except with the prior approval of the Board of Directors at a regularly
convened meeting by the vote of not less than two-thirds of the total
number of directors, no insurer shall grant any loan or temporary advance
to any firm or company in which any director, manager, actuary, auditor
or officer of the insurer, or any member of the family of such director,
manager, actuary, auditor or officer has any interest as proprietor, partner,
director, manager or managing agent:

Provided that no such approval shall be required if the loan is secured by a life policy issued by the insurer and is an amount not exceeding eighty per cent, of the surrender value of that policy.

(3)                      The director concerned shall not vote at, or otherwise participate in the
proceedings of the meeting of the Board considering the grant of any
such loan or advance as is referred to in sub-section (2).

(4)                      Where any event occurs giving rise to circumstances the existence of
which at the time of the grant of any subsisting loan or temporary
advance would have made such grant a contravention of sub-section (1)
or sub-section (2), such loan shall, notwithstanding any contract to the
contrary, be repaid within three months from the occurrence of such
event and in case of default, the director, manager, actuary, auditor or
officer concerned shall, without prejudice to any other penalty to which
he may be liable, cease to hold office with the insurer granting the loan or


advance on the expiry of the said three months.

(5)                      Nothing in sub-section (1) or sub-section (2) shall apply to loans or
advances granted by an insurer to a banking company or to a subsidiary
company (being an insurer) or to any insurer to which the insurer
granting the loan or advance is a subsidiary company.

(6)                      Nothing in sub-section (1) shall apply to any stipend paid to any
insurance agent while he is undergoing a course of training approved by
the Federal Government.

(7)                      The provisions of section 195 of the Companies Ordinance, 1984 (XLVII
of 1984), shall not apply to a loan granted to a director of an insurer being
a company, if the loan is one granted on the security of a policy on which
the insurer bears risk and the policy was issued to the director on his own
life, and the loan is of an amount not more than eighty per cent, of the
surrender value of the policy.

(8)                      Except as otherwise provided in this section, an insurer may make a loan
or temporary advance to an employee or agent of that insurer in
accordance with such conditions as may be prescribed by the
Commission.

(9)                      With effect from the commencement date, no loan or temporary advance
granted under this section by a life insurer to an employee or an agent of
the insurer, other than a loan granted on the security of a policy issued to
the employee or agent on his own life and on which the insurer bears risk,
shall be made other than from the shareholders' fund of the insurer.

38.                  Liability of directors, etc for loss due to contraventions of sections 35,

36 or 37.- If by reason of a contravention of any of the provisions of sections 35, 36 or 37, any loss is sustained by the insurer or by the policy holders, every director, manager or officer of the insurer who is knowingly a party to such contravention shall, without prejudice to any other penalty to which he may be liable under this Ordinance, be jointly and severally liable to make good the amount of such loss.

39.                  Assets of insurer how to be kept.- None of the assets in Pakistan of any

insurer shall, except in the case of deposits made with the State Bank of Pakistan under section 29, or in the case of assets, other than deposits, with a scheduled bank acting as a custodian, be kept otherwise than in the corporate name and under the direct control of the insurer and, in the case of assets of a statutory fund of a life insurer, in the name of the statutory fund.

PART VI

REINSURANCE ARRANGEMENTS

40.                  Special definitions and conditions applicable to this Part- (1) In this

Part:

(a)         "Company" means the Pakistan Reinsurance Company
Limited; and

(b)        "net retention" means the part of the sum insured in respect
of any one risk which is retained by an insurer to his own


account.

(2)           This Part, other than section 41, shall cease to have effect on the
happening of either of the following events:

(a)         the effective date of a direction by the Commission to the
Company to cease entering into new contracts of insurance;
or

(b)        the Federal Government ceasing to hold a controlling
ownership interest in the Company.

 

(3)                      A provision of this Part, other than section 41, shall not have effect with
respect to an insurer if and to the extent that complying with that
provision would cause that insurer to contravene a provision of section 11
or section 41.

(4)                      For the purposes of this Part other than section 41 and this section, the
Company is not an insurer.

41.                  Requirement to effect and maintain reinsurance arrangements.- (1)

An insurer shall effect and shall at all times maintain such reinsurance arrangements as are, in the opinion of the directors (or such other person or body responsible for conducting the management and business of the insurer), formed on reasonable grounds, having regard to the exposures of the insurer in respect of individual contracts accepted and in respect of aggregate losses arising out of individual events, adequate to ensure continuing compliance by the insurer with the provisions of this Ordinance relating to solvency.

(2)                             Every insurer shall submit to the Commission, in the manner
prescribed by the Commission and not less than one month prior to the
coming into effect, or as soon as practicable thereafter, of any treaty
reinsurance arrangement entered into by the insurer as cedant, such
features of that reinsurance arrangement as may be prescribed by the
Commission.

(3)                             Where any reinsurance treaty the particulars of which have been
submitted to the Commission under sub-section (2) is altered or any new
treaty reinsurance arrangement is made after the submission of the
information under sub-section (2), the insurer concerned shall submit to
the Commission, in the manner prescribed by the Commission,
particulars of such alteration in the treaty or such new treaty reinsurance
arrangement within one month of such alteration or arrangement and
shall submit such further information or clarification as the Commission
may require.

(4)                             The Commission may, at any time and after giving the insurer an
opportunity of being heard, for reasons to be recorded in writing, direct
the insurer to make such modifications in his reinsurance arrangements as
the Commission may specify.

(5)           The Federal Government may make rules, not inconsistent with sub­
section (1), governing the reinsurance outside Pakistan, other than on a
treaty basis, of insurance business underwritten by an insurer in Pakistan.

Explanation:- For the purposes of this section, "reinsurance" includes "retrocession".

42.                  Compulsory cession.- (1) Every insurer shall in each year reinsure with


the Company and the Company shall accept by way of reinsurance not less than such proportion, subject to the maximum of twenty per cent on any individual risk, of the sum insured on each direct non-life insurance contract issued by the insurer in Pakistan in that year, as is determined on such basis as may, from time to time, be notified by the Federal Government in the official Gazette.

(2)           The Federal Government may, by notification in the official Gazette,
direct that every insurer shall offer to reinsure with the Company such
proportion as is determined on such basis as may be specified in such
notification of its direct non-life insurance business which is in excess of
the aggregate of:

(a)         the insurer's net retention;

(b)        the sum insured required to be reinsured under sub-section
(l);and

(c)         the sum insured otherwise reinsured with the Company or
with any other insurer in Pakistan but excluding any part
reinsured outside Pakistan.

 

(3)                      The reinsurance set out in sub-section (1) shall for the purposes of this
Ordinance constitute a treaty contract of reinsurance between the insurer
and the Company, operating on a risks attaching basis.

(4)                      Whoever contravenes the foregoing provisions of this section shall be
punishable with a fine which may extend to ten thousand rupees and with
a further fine which may extend to one thousand rupees for every day
after the day on which the contravention continues.

(5)                      The Federal Government may, by notification in the official Gazette and
on reasonable grounds, exempt any insurer and the Company from the
preceding requirements of this section so far as concerns any part of any
class or sub-class of business.

43.                  Premiums and statements.- (1) Every insurer shall pay the amount

payable on account of reinsurance with the Company as required under sub-section (1) of section 42, within such period as may be prescribed by regulations and in default of such payment shall be liable to pay the Company for the period during which the default continues a penalty calculated on the amount of the defaulted premium at the base rate prevailing on the date on which the default first occurred.

(2)                      Every insurer shall submit to the Company in such manner and form and
within such period as may be prescribed by regulations, a statement
relating to his business reinsured with the Company under sub-section (1)
of section 42.

(3)                      Whoever contravenes sub-section (1) or sub-section (2) shall be
punishable with a fine which may extend to ten thousand rupees and with
a further fine which may extend to one thousand rupees for every day
after the day on which the contravention continues.

(4)                      The Company may call for or examine or cause to be examined such
relevant accounts, books, documents, memoranda or other records of an
insurer as it may reasonably require for the purpose of verifying the
correctness of the claims, declarations, returns, statements or other
information submitted to it by that insurer.

(5)                      An insurer shall, when called upon to do so under sub-section (4),
produce and make freely accessible to the Company or to its
representative duly authorised in this behalf such accounts, books,
documents, memoranda or other records as are in his possession or


control, and shall otherwise facilitate the examination thereof.

(6)           Whoever wilfully obstructs the Company or any person authorised by it

in the exercise of its or his power or performance of functions under sub­section (4), or fails without reasonable cause to comply with a request made thereunder, or who, being an insurer, fails otherwise to comply with a duty imposed on that insurer under sub-section (5), shall, in respect of each occasion on which any such obstruction or failure takes place, be punishable with fine which may extend to fifty thousand rupees.

44.                  Rules and regulations for the administration of eompulsory

reinsurances.- (1) The Federal Government may make such rules and regulations and issue such notifications as are necessary for the administration of section 42 and section 43.

(2)           Rules, regulations and notifications, made under the authority of the

Pakistan Insurance Corporation Act 1952 for the purposes of section 26 of that Act and in force as at the commencement date, shall be deemed to have been made under the provisions of the preceding sub-section and shall apply mutatis mutandis except in so far as and to the extent that they conflict with the provisions of this Ordinance.

PART VII ACCOUNTS AND AUDIT

45.                  Books and records.-(1) Every insurer, in respect of all insurance

business transacted by him, and in the case of an insurer incorporated in a jurisdiction outside Pakistan in respect of the insurance business transacted by the insurer in Pakistan, shall maintain proper books and records.

(2)                      Books, accounts and records in respect of insurance business transacted
in Pakistan shall be maintained in Pakistan and in either the English or
the Urdu language.

(3)                      For the purposes of this Ordinance, proper books and records shall
include without limitation:

 

(a)         a register or record of policies, in which shall be entered, in
respect of every policy issued by the insurer, the name and
address of the policy holder, the date when the policy was
effected and a record of any transfer, assignment or
nomination of which the insurer has notice;

(b)        a register or record of claims, in which shall be entered
every claim made together with the date of the claim, the
name and address of the claimant and the date on which the
claim was discharged, or, in the case of a claim which is
rejected, the date of rejection and the grounds therefor; and

(c)      such other books and records as may from time to time be prescribed.

(4)           For the purposes of this Ordinance, the expression "books" includes -


(a)         a register;

(b)        accounts or accounting records, however compiled,
recorded or stored;

(c)         a document; and

(d)        any other record of information.

(5)           A book that is required by this Ordinance or the Companies Ordinance,
1984 to be kept or prepared by an insurer may be kept or prepared

(a)         by making entries in a bound or looseleaf book;

(b)        by recording or storing the matters concerned by means of
a mechanical, electronic or other device; or

(c)         in any other manner approved by the Commission.

Provided that the matters recorded or stored are capable, at any time, of being reproduced in a written form or a reproduction of those matters is kept in a written form approved by the Commission.

(6)           An insurer shall take all reasonable precautions, including such
precautions, if any, as may be prescribed, for guarding against damage to,
destruction of or falsification of or in, and for discovery of falsification of
or in, any book or part of a book required to be kept or prepared by an

46.                  Accounting and reporting.- (1) Every insurer shall at the expiration of

each year prepare and deliver to the Commission with reference to that year annual statutory accounts comprising the following statements duly audited by an approved auditor:

(a)    in the case of a life insurer, -

                                        (i)       a statement of assets and liabilities for each statutory fund operated by the life insurer and the shareholders' fund;

                                        (ii)      a statement of profits and losses for the shareholders' fund; 

                                                     (iii)        a statement of cash flows for each statutory fund operated by the life insurer and the shareholders' fund;

                                        (iv)      a revenue account for each statutory fund operated by the life insurer;

                                        (v)      a statement of premiums for each statutory fund operated by the life insurer;

                                        (vi)     a statement of claims for each statutory fund operated by the life insurer;

                                        (vii)    a statement of expenses for each statutory fund operated by the life insurer;

                                        (viii)   a statement of investment income for each statutory fund operated by the life insurer

                                        (ix)     such other statements as may be prescribed by the Federal Government;

each in such form as may be prescribed by the Commission and prepared in accordance with such regulations as are issued by the Commission from time to time in this behalf;

(b)    in the case of a non-life insurer,


(i)    a statement of assets and liabilities;

(ii)   a statement of profits and losses;

(iii)   a statement of cash flows;

(iv)   a statement of premiums;

(v)    a statement of claims;

(vi)   a statement of expenses;

(vii)  a statement of investment income;

(viii) a statement of claims analysis;

(ix)  a statement of exposures; and

(x)   such other statements as may be prescribed by theFederal Government;

each in such form as may be prescribed by the Commission and prepared in accordance with such regulations as are issued by the Commission from time to time in this behalf.

(2)           Every insurer shall furnish, to the Commission, following the last day of December, March, June and September in each year, a statement of assets and liabilities in the form and prepared in accordance with the regulations prescribed under the preceding sub-section made up as of that date and such statement shall be certified by a principal officer of the insurer.

                Provided that an actuarial valuation of policyholder liabilities as at the date to which such statement is made up is not required by virtue of this sub-section alone, and that the regulations prescribed under this sub-section shall provide for the determination of the value which is to be attributed to policyholder liabilities for the purposes of this sub-section.

(3)                      In the case of an insurer registered to conduct life insurance business, such statement shall be furnished separately in respect of each statutory
fund maintained by the life insurer and in respect of the shareholders' fund.

(4)                      The statements referred to in the foregoing sub-sections shall be prepared in respect of all insurance business transacted by an insurer except that in
the case of an insurer incorporated in a jurisdiction outside Pakistan, the statement shall be prepared in respect of the insurance business transacted
by the insurer in Pakistan.

(5)                      In the case of a life insurer having in force policies which are investment- linked, the statement referred to in sub-section (2) shall be accompanied by a statement, signed in the case of a company by any two directors and the principal officer of the company, and in the case of an insurer incorporated in a jurisdiction outside Pakistan, by its principal officer in Pakistan and any two directors (or the closest comparable officer equivalent thereto), containing the following particulars in respect of its investment-linked business:

 

(a)         the assets underlying the units linked to policies in force;

(b)        the values assigned to each such asset;

(c)         the valuation placed on the units; and

(d)        the amount of any provisions made in determining the valuation.

(6)           The statements referred to in sub-section (1) shall be signed, in the case of a company, by the chairman, if any, and two directors and the principal
officer of the company, or in the case of an insurer incorporated in a jurisdiction outside Pakistan, by its principal officer in Pakistan and any two directors (or the closest comparable officer equivalent thereto) and shall be accompanied by a statement containing the names and descriptions of the persons in charge of the management of the business during the period to which such accounts and statements refer; by a report by such persons on the affairs of the business during that period; and 
statement by such persons signed by the same persons who have signed the accounts that

(a)         in their opinion the annual statutory accounts of the insurer set out in the forms attached to the statement have been drawn up in accordance with the Ordinance and any rules made thereunder;

(b)         the insurer has at all times in the year complied with the provisions of the Ordinance and the rules made thereunder relating to paid-up capital, solvency and reinsurance arrangements; and

(c)         as at the date of the statement, the insurer continues to be in compliance with the provisions of the Ordinance and the rules made thereunder relating to paid-up capital, solvency and reinsurance arrangements.

47.                  Compliance with companies laws relating to accounts, reports, etc.-

(1) Every insurer being a company shall deliver to the Commission in such manner as may be prescribed such additional copies as may be prescribed of all accounts, documents, reports and returns filed under the Companies Ordinance, 1984 at the same time as they are required to be filed thereunder.

(2)                      An insurer incorporated in a jurisdiction outside Pakistan registered as an insurer shall comply with all applicable requirements of Part XIV of the
Companies Ordinance, 1984 and shall provide to the Commission in such manner as may be prescribed such additional copies as may be prescribed
of all accounts, documents, reports and returns filed thereunder at the same time as they are required to be filed under the Companies Ordinance, 1984 (XLVII of 1984);

(3)                      In addition to the requirements of the foregoing sub-section, an insurer which is an insurer incorporated in a jurisdiction outside Pakistan, shall also provide to the Commission, not later than thirty days from such date on which such insurer is required to provide such information to any governmental or independent regulatory authority in accordance with the laws of the jurisdiction of its incorporation or other applicable law in the country in which it has its corporate seat or principal place of business, a copy of the annual accounts prepared under the laws of the place of its incorporation and a copy of any public document which shows or purports to show the annual profit or state of affairs of the insurer in respect of its business in Pakistan.

(4)                      Any materials required to be provided under the provisions of sub­ sections (2) and (3), if not in either the English or the Urdu language, shall be accompanied by certified copies (in such number as may be required under the Companies Ordinance, 1984 or as may otherwise be prescribed by the Commission) of an English translation thereof.

48.                  Audit.-(1) Every insurer shall appoint an auditor who shall be:

(a)         approved by the Commission as qualified to perform audits of insurance companies; and

(b)        authorised under the Companies Ordinance to perform audits of public companies.

(2)           The auditor shall in respect of the statements required to be provided pursuant to sub-section (1) of section 46 express an opinion as to


whether:

(a)         the statements accurately reflect the books and records of the company;

(b)         the company has maintained proper books and records;

(c)         the statements present fairly the state of affairs of the company as at the balance date and the result of the company for the financial year ended on that date;

(d)         in the case of a life insurer, the apportionment required to be performed under section 17 has been performed in accordance with the advice of the appointed actuary; and

(e)         the statements have been prepared in accordance with this Ordinance.

 

(3)                      The opinion required to be expressed by an auditor under sub-section (2) shall be expressed in writing and a copy of the opinion shall be attached
by the insurer to the statements to which it relates, when those statements are delivered to the Commission.

(4)                      The auditor shall in the audit of all such accounts and statements have the powers of, exercise the functions vested in, and discharge the duties and be subject to the liabilities and penalties imposed on, auditors of companies by sections 255, 256,257 and 260 of the Companies Ordinance, 1984.

49.                  Special audit.- (1) The Commission may at its discretion appoint an auditor, approved by the Commission as qualified to perform audits of insurance companies but not being the auditor, or a partner of the auditor appointed by the insurance company concerned, to perform an investigation of such accounts and statements, books and records of an insurer as the Commission may direct.

(2)                      An auditor appointed under this section shall have a right of access to all such books of account, registers, vouchers, correspondence and other
documents of the insurer, and shall be entitled to require from the
directors and officers of this insurer such information and explanation, as may be necessary for the performance of his functions and duties under this section.

(3)                      Every report prepared by an auditor or auditors appointed under this section shall be submitted to the Commission.

(4)                      An auditor appointed under this section shall be paid by the insurer such fees as may be prescribed.

(5)                      The fee payable by an insurer under sub-section (4) shall be paid to the auditor within such time as may be specified by the Commission.

50.                  Actuarial report.- (1) Every insurer carrying on life insurance business

shall, in respect of the life insurance business transacted by it, as at the end of each year cause an investigation to be made by the appointed actuary into the financial condition of the life insurance business carried on by it, including a valuation of its policyholder liabilities in respect thereto and shall cause the report of the appointed actuary to be made in accordance with such conditions as may be prescribed by the Commission.

(2)           The provisions of sub-section (1) regarding the making of a report shall apply whenever at any other time an investigation into the financial condition of the insurer is made with a view to the distribution of profits or an investigation is made of which the results are made public.

(3)                      There shall be appended to every such report as is referred to in sub­ section (1) or sub-section (2) a certificate signed by the principal officer of the insurer that full and accurate particulars of every policy under which there is a liability either actual or contingent have been furnished to the appointed actuary for the purpose of the investigation.

(4)                      The financial condition report prepared under sub-section (1) shall include a statement, prepared in conformity with such conditions as may be prescribed in this behalf, of the life insurance in force at the date to which the accounts of the insurer are made up for the purposes of such report.

(5)                      The financial condition report prepared under sub-section (1) shall include a statement of the minimum actuarial reserve for policyholder liabilities calculated in the manner and on the basis prescribed by the Commission in this behalf.

 

Explanation: in this section, the "minimum actuarial reserve for policyholder liabilities" means, for each statutory fund of the insurer, the amount of policyholder liabilities referred to in sub­section (3) of section 35 or the sum referred to in sub-section (4) of section 35, whichever is applicable to that statutory fund.

(6)           If for any statutory fund the amount which, in the opinion of the appointed actuary, represents a realistic valuation of policyholder liabilities existing at balance date, including prudent but reasonable provision for adverse development in those liabilities after balance date, is greater than the minimum actuarial reserve for policyholder liabilities for that statutory fund, the financial condition report prepared under sub­ section (1) shall include a statement of that amount.

(7)           The Commission may require an insurer, or insurers generally, to cause

an actuarial investigation to be conducted in such manner as may be prescribed in respect of such class or sub-class of non-life insurance business as may be prescribed, and to provide the Commission with a copy of the actuary's report on that investigation.

51.                  Submission of returns.- (1) The audited statements and report referred to in sub-sections (1) and (5) of section 46 and the report and statement referred to in section 50, including any report referred to in sub-section (7) of section 50, shall be furnished as returns to the Commission in such manner as may be prescribed by the Commission, but in any case including at least one printed copy, within four months from the end of the period to which they refer:

Provided that the Commission may on application by an insurer extend the time allowed by this sub-section for the furnishing of such returns by a further period not exceeding one month.

(2)           The statement referred to in sub-section (2) of section 46 shall be

furnished as a return to the Commission in such manner as may be prescribed by the Commission, but in any case including at least one printed copy, within six weeks from the date to which it is made up:

Provided that the Commission may on application by an insurer extend the time allowed by this sub-section for the furnishing of such returns by a further period not exceeding fifteen days.

(3)                      One printed copy of the returns shall be signed in the case of a company by the chairman and two directors and by the principal officer of the
company and, if the company has a chief executive (by whatever name called), also by him, and in the case of the report and statement referred
to in section 50 by the actuary who carried out the investigation.

(4)                      Until 31 December 2000, this section shall apply as though the periods of four months and six weeks contained therein shall be substituted
respectively by periods of six months and eight weeks.

52.                  Exemption from certain provisions of the Companies Ordinance,

1984.- (1) The Commission may prescribe a form of balance sheet, profit and loss account, revenue account and any other statement required to be filed by life insurers for the purposes of sub-section (5) of section 233 of the Companies Ordinance, 1984 (XLVII of 1984), and filing made in such form shall satisfy the requirements of that sub-section.

(2)           The statements required to be filed by life insurers for the purposes of

sub-section (5) of section 233 of the Companies Ordinance, 1984 (XLVII of 1984), shall be deemed to include the following statements, each in such form as may be prescribed by the Commission:

(a)         a statement by the appointed actuary of his opinion as to whether the policyholder liability included in the balance sheet has been
determined in accordance with the provisions of this Ordinance;

(b)        a statement by the appointed actuary of his opinion as to whether each statutory fund of the insurer complies with the solvency
requirements of this Ordinance;

(c)         a statement by the directors of the insurer of their opinion as to whether each statutory fund of the insurer complies with the
solvency requirements of this Ordinance; and

(d)        such other statements as may be prescribed by the Commission.

53.                  Furnishing reports.- Every insurer shall furnish to the Commission a

certified copy of every report on the affairs of the insurer which is submitted to the members or policy holders of the insurer immediately after its submission to the members or policy holders, as the case may be.

54.                  Abstract of proceedings of general meetings.- Every insurer, being a

company or body corporate incorporated under any law for the time being in force in Pakistan, shall furnish to the Commission a certified copy of the minutes of the proceedings of every general meeting as entered in the Minutes Book of the insurer within thirty days from the holding of the meeting to which it relates.

55.                  Custody and inspection of documents and supply of copies.- (1)

Every return furnished to the Commission, or a certified copy thereof shall be kept by the Commission and shall be open to inspection; and any person may procure a copy of any such return, or of any part thereof, on payment of such fee as may be prescribed.

(2)           A printed or certified copy of the accounts, statements and report Furnished in accordance with the provisions of section 46 shall, on the application of any shareholder or policy holder made at any time within two years from the date on which the document was so furnished be supplied, to him by the insurer within fourteen days when the insurer is a company or body corporate incorporated in Pakistan and in any other case within one month of such application.

(3)           A copy of the memorandum and articles of association of the insurer, if a

company, shall on the application of any policy holder, be supplied to him by the insurer on payment of such fee as may be prescribed.

56.                  Power of Commission regarding returns .- If it appears to the Commission that any return furnished to it under the provisions of this
Ordinance is inaccurate or defective in any material particular, it may:

(a)     require from the insurer such further information, certified if the Commission so directs by an auditor or actuary, as the Commission may consider necessary to correct or supplement such return;

(b)     call upon the insurer to submit for its examination at the principal place of business of the insurer in Pakistan any book of account, register or other document or to supply any statement which the Commission may specify in a notice served on the insurer for the purpose;

(c)     examine any officer of the insurer on oath in relation to the return; or

(d)     decline to accept any such return unless the inaccuracy has been corrected or the deficiency has been supplied before the expiry of one month from the date on which the requisition asking for correction of the inaccuracy or supply of the deficiency was delivered to the insurer and
if the Commission declines to accept any such return, the insurer shall be deemed to have failed to comply with the provisions of section 46 or section 51 relating to the furnishing of returns.

57.                  Power of Commission to order actuarial report.- (1) If it appears to the Commission that a report prepared under section 50 does not properly indicate the condition of the affairs of the insurer, the Commission may after giving notice to the insurer and giving him an opportunity to be heard, cause an investigation to be made into the financial condition of the insurer as at such date as the Commission may specify, at the expense of the insurer, by an actuary appointed by the insurer for this purpose and approved by the Commission and the insurer shall place at the disposal of the actuary so appointed and approved all the material required by the actuary for the purposes of the investigation within such period, not being less than three months, as the Commission may specify.

(2)           Subject to sub-section (3), the provisions of sub-sections (1), (4), (5) and (6) of section 50, and of sub-section (1) of section 51 shall apply in
relation to an investigation under this section:

Provided that the report and statement prepared as the result of such investigation shall be furnished by such date as the Commission may specify.

(3)           Where the report first referred to in sub-section (1) was prepared pursuant to sub-section (7) of section 50, sub-section (2) shall not apply, and the provisions of sub-section (7) of section 50 shall apply in relation to an
investigation under this section:

Provided that the report prepared as the result of such investigation shall be furnished by such date and in such manner as the Commission may specify.


58.                  Evidence of documents.- (1) Every return furnished to the Commission,

which has been certified by the Commission to be a return so furnished, shall be deemed to be a return so furnished.

(2)           Every document, purporting to be certified by the Commission to be a

copy of a return so furnished, shall be deemed to be a copy of that return and shall be received in evidence as if it were the original return, unless some variation between it and the original return is proved.

 

PART VIII

INVESTIGATION, DIRECTIVES, ETC.

59.                  Power of Commission to order investigation.-(1) If the Commission

believes upon reasonable grounds that an insurer is or is likely to become unable to meet its liabilities or that there has been or is likely to be a contravention of the provisions of the Ordinance or the rules made thereunder by the insurer, it may investigate the affairs of an insurer and wherever necessary, employ an auditor or actuary or both for assisting it in any such investigation.

(2)           An investigation under sub-section (1) shall be commenced and carried

out in accordance with the provisions of Part VIII of the SECP Act.

Provided that for the purposes of this section, the words "the Court referred to in Part II of the Ordinance" contained in sub-section (1) of section 34 of the SECP Act shall be read as though they were omitted and replaced with the words "the Tribunal".

(3)           When an investigation is made under this section, the Commission may,

after giving an opportunity to the insurer to make a representation in writing or be heard in person, by order in writing require the insurer to take such action in respect of any matter arising out of the investigation as it may consider on reasonable grounds to be necessary to secure compliance with the provisions of this Ordinance.

60.                  Power of the Commission to give directions to the insurer.-(1) The

Commission may, if it believes on reasonable grounds that an insurer registered under this Ordinance has failed, or is about to fail, to comply with the conditions of registration set out in section 11, issue to the insurer such directions, not otherwise provided for in this Ordinance, as it believes on reasonable grounds to be necessary to protect the interests of the policy holders of the insurer.

(2)                      The Commission may, on representation made in this behalf, or on its
own motion, modify, or cancel any direction issued under sub-section (1)
and may, in so modifying or cancelling a direction, impose such
conditions as it may deem on reasonable grounds to be appropriate under
the circumstances.

(3)                      Every insurer shall comply with any direction issued under sub-section
(1) or such direction as modified under sub-section (2) subject to such further conditions, if any, as may be imposed.

(4)           The Federal Government may, by rules made in this behalf, provide

(a)     for the procedures which the Commission shall follow with respect to all or any of the matters set out in sub­
sections (1) and (2);

Provided that no powers shall be exercised under sub-section (1) until such rules, consonant with the provisions of sub-sections (3) and (4) of section 22 of the SECP Act, have been made; and

(b)     for any other matter supplementary or incidental to or consequential on the matters aforesaid for which provision requires to be made by rules.

61.                  Power of Commission to call for information and access.-(1) The

Commission may by notice in writing direct any insurer to supply the Commission, within such period as the notice may specify, with any information relating to its insurance business which the Commission may reasonably require.

(2)                      The Commission may direct that any information supplied under sub­ section (1) shall be certified by the principal officer of the insurer, by an independent auditor or in the case of a life insurer by the insurer's appointed actuary.

(3)                      The Commission may by notice in writing direct the chief executive or principal officer of the insurer to discuss with the Commission any matter pertaining to the business or management of the insurer.

(4)                      The Commission may by notice in writing require the insurer to allow any officers of the Commission nominated for the purpose to observe, for such period as the Commission may specify, the manner in which the affairs of the insurer or of any of its offices or branches are being conducted.

62.                  Power of Commission to require plan.-(1) The Commission may

direct an insurer to prepare, present to its directors and to the Commission, and to report to its directors and to the Commission on the implementation of, a plan for action to rectify or to prevent an actual or apprehended contravention by the insurer of the conditions of registration set out in section 11.

(2)           The Commission may in making a direction under sub-section (1) direct

that such a plan or report on the implementation thereof contain such information and be accompanied by such opinions or certificates as the Commission shall specify.

Power of Commission to issue direction to cease entering into new contracts of insurance.- (1) The Commission may issue a direction to cease entering into new contracts of insurance if it believes on reasonable grounds that an insurer registered under this Ordinance has failed, or is about to fail, to comply with the conditions of registration set out in section 11.


(2)           The Commission shall issue a direction to cease entering into new contracts of insurance if:

(a)         a petition is presented for the winding up of the insurer and has not been withdrawn or vacated within a period of sixty days;

(b)         the whole of the business of an insurer has been transferred to any person;

(c)         the Tribunal has made an order that a direction be given to that insurer to cease entering into new contracts of insurance; or

(d)         the insurer has failed to comply with a directive issued under this Ordinance concerning a contravention of the Ordinance or the rules made thereunder, within the time specified in the Ordinance or, if not so specified, within the time specified in the directive or three months, whichever
is longer, and the directive had stated that the failure to comply would lead to a direction to cease entering into
new contracts of insurance:

      Provided that a direction shall not be issued under clause

(d) without giving the insurer an opportunity to be heard.

(3)                      A direction to cease entering into new contracts of insurance shall have effect one month from the date of the direction unless a later date is
specified in the direction.

(4)                      A direction to cease entering into new contracts of insurance shall be accompanied by a statement of the reasons for the direction.

(5)                      A direction to cease entering into new contracts of insurance shall only be revoked if the reasons for the direction as given in the statement required to be given by the preceding sub-section shall have ceased to exist.

(6)                      An insurer shall not be in contravention of a direction to cease entering into new contracts of insurance by reason only that the insurer continues to carry out its obligations under contracts of insurance entered into before the direction came into effect.

64.                  Power to require calling of meeting of directors etc.- If the

Commission is satisfied that such action is necessary for the purposes of procuring action by an insurance company, or of satisfying itself that appropriate action is being taken or after an investigation under section 56, the Commission may by order in writing and on such terms and conditions as may be specified therein:

(a)         require an insurance company to call a meeting of its directors for the purpose of considering any matter relating to, or arising out of the affairs of the insurer;

(b)        require the insurer to allow any officer of the Commission deputised for the purpose to attend, and to speak at, any meeting of the Board of Directors of the insurer or of any committee or other body constituted by the insurer and to furnish such officer with a copy of the proceedings of such meeting; or

(c)         require the insurer to send in writing to the Commission all notices of, and other communication relating to, any meeting of the Board of Directors of the insurer, or of any committee or other body constituted by the insurer.


65.                  Power to remove Chairman, Director, etc. of the insurer.- (1) If, after

the completion of a special audit under section 49 or investigation under section 59, or otherwise on reasonable grounds, the Commission has reason to believe that a person holding the office of Chief Executive, Chairman, director, manager or principal officer, by whatever name called (including the principal officer in Pakistan of an insurer incorporated in a jurisdiction outside Pakistan), of an insurer has contravened the provisions of any law (including, in the case of a company any such person having become disqualified under the provisions of section 187 of the Companies Ordinance) and that the contravention is of such a nature that the association of such person with the insurer or insurance broker is or is likely to be detrimental to the interest of the insurer or of the policy holders, or is otherwise undesirable, such person not being a fit and proper person to have the charge of an insurer, the Commission shall make a report of the fact to the Tribunal.

(2)                      If, after considering a report under sub-section (1) and after giving such person an opportunity of being heard, the Tribunal is satisfied that the association with the insurer of the person in respect of whom the report has been made is or is likely to be detrimental to the interests of the insurer or the policy holders, or is otherwise undesirable, such person not being a fit and proper person to have the charge of an insurer, it may make an order that such person shall cease to hold the office with the insurer with effect from such date as may be specified in the order, and thereupon that office shall, with effect from the said date, become vacant.

(3)                      An order under sub-section (2) in respect of any person may also provide that he shall not, without the previous permission in writing of the Tribunal in any way, directly, or indirectly, be concerned with, or take part in the management of the insurer or any other insurer for such period not exceeding five years as may be specified in the order.

(4)                      No order under sub-section (2) shall be made in respect of any person without giving him an opportunity of being heard unless the Tribunal is of the opinion that any delay in making the order would be detrimental to the interest of the insurer or of the policy holders.

(5)                      The foregoing provisions of this section shall apply to insurance brokers as they apply to insurers and to such other insurance intermediaries as the Federal Government may specify by notification in the Gazette.

66.                  Power to prescribe maximum levels of acquisition costs and

maximum levels of management expenses.- (1) The Commission may make rules limiting the total amount of acquisition costs which may be incurred by an insurer in a year.

 

(2)                      The Commission may make rules limiting the total amount of management expenses which may be incurred by an insurer in a year.

                    (3)                      Rules made under sub-section (1) or sub-section (2) shall apply to all insurers to whom the Ordinance applies:

Provided that the rules may differentiate between different categories of insurance business for the purposes of determining limits.


                    (4)                      The power conferred by this section shall expire on 31 st December next following the date five years from the commencement date and all rules
made under this section shall be repealed on the expiry of that power.

 

                    (5)                      For the purposes of this section:

 

(a)         "acquisition costs" means such costs as may be prescribed, incurred in acquiring insurance policies and in maintaining such policies, and includes without limitation all forms of remuneration paid to insurance agents and brokers; and

(b)        "management expenses" means all expenses incurred by an insurer, not being reinsurance expenses or claims expenses or expenses directly referable to claims, and includes without limitation acquisition costs as defined in this sub­ section.

 

PART IX

AMALGAMATION AND TRANSFER

OF INSURANCE BUSINESS

67.                  Approval of acquisition or transfer.- (1) Any proposed transaction for

the acquisition of a shareholding of more than ten per cent. (10%) in an insurance company, or, in the case of a non-life insurer, of the whole or any part exceeding ten per cent, (measured by either the premium income or the sum of the liabilities for unearned premium and outstanding claims and the premium deficiency reserve proposed to be acquired) of the business located in Pakistan of an insurer (whether in one or a number of related transactions and whether at the same or different times) shall not proceed unless, on application by the transferor, approval is given by the Commission.

Explanation: A number of transactions shall be deemed to be related if there being more than one purchaser, those purchasers are acting together or in concert or if, in all the facts and circumstances of the case, there is such a relationship between the purchasers or such common purpose between them so that it would be reasonable to conclude that the transactions are related.

(2)                      The application required under sub-section (1) shall be made in such formand shall be accompanied by such documents as may be prescribed.

(3)                      The Commission may, within 15 days from the receipt of the application, require the applicant to submit such further documents and information as
may be required for it to make an informed decision about the transaction
in the interests of policy holders and shareholders and the applicant shall provide the same within a period of seven days or such later period as the applicant may in writing request.

(4)                      If after sixty days of the receipt of the application or the receipt of any additional material under sub-section (3), approval has not been granted or a notice given to the applicant declining approval, the Commission shall be deemed to have given its approval.

(5)                      Approval given or deemed to be given by the Commission under this section shall not preclude the necessity of obtaining any such approval or consent required to be obtained from the Commission under the provisions of any other applicable law.


68.                  Amalgamation and transfer of life insurance business.-(1) No life

insurance business of an insurer shall be transferred to any person or transferred to or amalgamated with the life insurance business of any other insurer except in accordance with a scheme prepared under this section and sanctioned by the Court having jurisdiction over one or other of the parties concerned.

(2)                      Any scheme prepared under this section shall set out the agreement under which the transfer or amalgamation is proposed to be effected, and shall contain such further provisions as may be necessary for giving effect to the scheme.

(3)                      Before an application is made to the Court to sanction any such scheme, notice of the intention to make the application together with a statement of the nature of the amalgamation or transfer, as the case may be, and of the reason therefore shall, at least sixty days before the application is made, be sent to the Commission, and certified copies, four in number, of each of the following documents shall be furnished to the Commission, and other such copies shall, during the sixty days aforesaid be kept open for the inspection of the members and policy holders at the principal and branch offices and chief agencies of the insurers concerned, namely:-

 

(a)         a draft of the instrument under which it is proposed to effect the amalgamation or transfer;

(b)        statements of assets and liabilities in respect of the insurance business of each of the insurers concerned in such amalgamation or transfer, prepared in the form prescribed by the Commission and in accordance with regulations issued by the Commission from time to time in
respect of the completion of that form;

(c)         an actuarial report on the financial condition of the life insurance business of each of the insurers so concerned, prepared in accordance with the regulations issued by the Commission from time to time in respect of the completion of that report;

(d)        a report on the proposed amalgamation or transfer,  prepared by an independent actuary who has never beenprofessionally connected with any of the parties concerned in the amalgamation or transfer at any time in the five years preceding the date on which he signs his report;

(e)         any other reports on which the scheme of amalgamation or transfer was founded.

(4)           The statements of assets and liabilities and reports referred to in clauses (b) (c) and (d) of sub-section (3) shall all be prepared as at the date to which the amalgamation or transfer, if sanctioned by the Court, is to take effect, which date shall not be more than twelve months before the date on which the application to the Court referred to in that sub-section is made.

69.                  Sanction of amalgamation and transfer by Court.- When any

application such as is referred to in sub-section (3) of section 68 is made to the Court, the Court shall cause, if for special reasons it so directs, notice of the application to be sent to every person resident in Pakistan or in a non-Acceding State who is the holder of a life policy of any insurer concerned and shall cause a statement of the nature and terms of the amalgamation or transfer, as the case may be, to be published in such manner and for such period as it may direct, and, after hearing the directors and such policy holders as apply to be heard any and other


persons whom it considers entitled to be heard, may sanction the arrangement, if it is satisfied that no sufficient objection to the arrangement has been established and shall make such consequential orders as are necessary to give effect to the arrangement, including orders as to the disposal of any deposit made under section 29: Provided that:-

(a)         no part of any deposit made under section 29 by any party to the amalgamation or transfer shall be returned except where, after sanction is given to the arrangement, the whole of the deposit to be made by the insurer carrying on the amalgamation business or the person to whom the business is transferred is completed;

(b)        only so much shall be returned as is no longer required to complete the deposit last mentioned in clause (a); and

 

(c)         while the deposit last mentioned in clause (a) remains uncompleted, no accession, resulting from the arrangement, to the amount already deposited by the insurer carrying on the amalgamated business or the person to whom the business is transferred shall be appropriated as payment or part payment of any instalment of deposit subsequently due from him under section 29.

70.                  Statements required after amalgamation and transfer.- Where an

amalgamation takes place between any two or more insurers, or where any business of an insurer is transferred, whether in accordance with a scheme confirmed by the Court or otherwise, the insurer carrying on the amalgamated business or the person to whom the business is transferred, as the case may be, shall, within three months from the date of the completion of the amalgamation or transfer, furnish in duplicate to the Commission:-

(a)         a certified copy of the scheme, agreement or deed under which the amalgamation or transfer has been effected;

(b)        a declaration signed by every party concerned or in the case of a company by the chairman and by the principal officer that to the best of their belief every payment made or to be made to any person whatsoever on account of the amalgamation or transfer is therein fully set forth and that
no other payments beyond those set forth have been made or are to be made either in money, policies, bonds, valuable securities or other property by or with the knowledge of any party to the amalgamation or transfer; and

(c)         where the amalgamation or transfer has not been made in accordance with a scheme sanctioned by the Court under section 69:

(i)      statements of assets and liabilities in respect of the insurance business of each of the insurers concerned in such amalgamation or transfer, prepared in the form prescribed by the Commission and in accordance with regulations issued by the Commission from time to time in respect of the completion of that form; and

(ii)     certified copies of any other reports on which the scheme of amalgamation or transfer was founded.

 

PART X

ASSIGNMENT OR TRANSFER OF POLICIES AND
NOMINATION

71.                  Assignment and transfer of life insurance policies.- (1) A transfer or

assignment of a policy of life insurance, whether with or without consideration, may be made only by an endorsement upon the policy itself or by a separate instrument, signed in either case, by the transferor or by the assignor or his duly authorised agent and duly attested, specifically setting forth the fact of transfer or assignment.

(2)           The transfer or assignment shall be complete and effectual upon the execution of such endorsement or instrument duly attested but, except where the transfer or assignment is in favour of the insurer, shall not be operative as against an insurer and shall not confer upon the transferee or assignee, or his legal representative, any right to use for the amount of such policy or the moneys secured thereby until a notice in writing of the transfer or assignment and either the said endorsement or instrument itself or a copy thereof certified to be correct by both transferor and transferee or their duly authorised agents have been delivered to the
insurer:

Provided that where the insurer maintains one or more places or business in Pakistan such notice shall be delivered only at the place in Pakistan mentioned in the policy for the purpose or at his principal place of business in Pakistan.

(3)                      The date on which the notice referred to in sub-section (2) is delivered to the insurer shall regulate the priority of all claims under a transfer or assignment as between persons interested in the policy and where there is more than one instrument of transfer or assignment the priority of the claims under such instruments shall be governed by the order in which the notices referred to in sub-section (2) are delivered.

(4)                      Upon the receipt of the notice referred to in sub-section (2), the insurer shall record the fact of such transfer or assignment together with the date thereof and the name of the transferee or the assignee and shall, on the request of the person by whom the notice was given, or of the transferee or assignee, grant a written acknowledgment of the receipt of such notice, and any such acknowledgment shall be conclusive evidence against the insurer that he has duly received the notice to which such acknowledgment relates.

(5)                      Subject to the terms and conditions of the transfer or assignment, the insurer shall, from the date of the receipt of the notice referred to in sub­
section (2) recognise the transferee or assignee named in the notice as the only person entitled to benefit under the policy, and such person shall be
subject to all liabilities and equities to which the transferor or assignor was subject at the date of the transfer or assignment and may institute any proceedings in relation to the policy without obtaining the consent of the transferor or assignor or making him a party to such proceedings.

(6)                      Notwithstanding any law or custom having the force of law to the contrary, an assignment in favour of a person made with the condition that it shall be inoperative or that the interest shall pass to some other person on the happening of a specified event during the lifetime of the person whose life is insured, and an assignment in favour of the survivor or survivors of a number of persons shall be valid.

 

(7)           No transferee or assignee of a life insurance policy issued by a mutual

insurance company shall become a member of that company by reason only of such transfer or assignment.

72.                  Nomination by policy holder.-(1) The holder of a policy of life

insurance on his own life, may, when effecting the policy or at any time before the policy matures for payment, nominate the person or persons to whom the money secured by the policy shall be paid in the event of his death:

Provided that where any nominee is a minor, it shall be lawful for the policy holder to appoint in the prescribed manner any person to receive the money secured by the policy in the event of his death during the minority of the nominee.

(2)                      Any such nomination in order to be effectual shall, unless it is incorporated in the text of the policy itself, be made by an endorsement on the policy communicated to the insurer and registered by him in the record relating to the policy and any such nomination may, at any time before the policy matures for payment, be cancelled or changed by an endorsement or a further endorsement or a will, as the case may be, but unless notice in writing of any such cancellation or change has been delivered to the insurer the insurer shall not be liable for any payment under the policy made bona fide by him to a nominee mentioned in the text of the policy or registered in records of the insurer.

(3)                      The insurer shall furnish to the policy holder a written acknowledgment of having registered a nomination or a cancellation or change thereof.

(4)                      A transfer or assignment of a policy made in accordance with section 71 shall automatically cancel a nomination:

Provided that the assignment of a policy to the insurer who bears the risk on the policy at the time of the assignment in consideration of a loan granted by that insurer on the security of the policy within its surrender value, or its re-assignment on repayment of the loan shall not cancel a nomination, but shall affect the right of the nominee only to the extent of the insurer's interest in the policy.

Provided further that the assignment of a policy to a party other than the insurer who bears the risk on the policy at the time of the assignment, in consideration of a loan granted by that person on the security of the policy within its surrender value shall not cancel a nomination but shall suspend it, to the extent of the interest of that person in the policy, until such time as the policy is re-assigned on repayment of the loan.

(5)                      Where the policy matures for payment during the lifetime of the person whose life is insured or where the nominee or, if there are more nominees than one, all the nominees die before the policy matures for payment, the amount secured by the policy shall be payable to the policy holder or his heirs or legal representatives or the holder of a succession certificate, as the case may be.

(6)                      Where the nominee or, if there are more nominees than one, a nominee or nominees, survive the person whose life is insured the amount secured by
the policy shall be payable to such survivor or survivors.

(7)                      The provisions of this section shall not apply to any policy of life insurance to which section 6 of the Married Women's Property Act, 1874
(HI of 1874), applies or has at any time applied:

              Provided that where a nomination made before the


commencement of this Ordinance, in favour of the wife of the person who has insured his life or of his wife and children or any of them, is expressed, whether or not on the face of the policy, as being made under this section, the said section 6 shall be deemed not to apply or not have applied to the policy.

Nomination under group life policies.- (1) A person whose life is insured under a contract of group life insurance may at any time nominate the person or persons to whom the money secured by the policy shall be paid in the event of his death:

Provided that where any nominee is a minor, it shall be lawful for the person whose life is insured to appoint in the prescribed manner any person to receive the money secured by the policy in the event of his death during the minority of the nominee.

(2)           A nomination made under sub-section (1) shall be made in such manner as may be prescribed.

 

Continued

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