Insurance company is a financial institution, which may be for-profit or government-owned, that sells the promise to pay for certain expenses in exchange for a regular fee, called a premium, insurance company underwrites the risk or loss of, or damage to, personal and business assets (general insurance) and life and limb (life and accident insurance).

Some companies specialise in one or other of these areas, but others (referred to as ‘composites’) operate in both sectors. Insurance companies issue insurance policies to cover a variety of contingencies (fire, flooding, breakage, theft, death etc.), involving potential financial loss to policy holders or their dependents in return for regular payments of a premium.

An insurance company operates by pooling risk among a large number of policy holders; premiums are based on the probability of a particular event occurring and the average financial loss associated with each. This is done by the company’s actuarial staff using statistical techniques to analyse past claims. For very large insurance risks, an insurance company may resort to reinsurance sharing the insurance premium with other insurers in proportion to the share of potential claim which they are prepared to accept. Furthermore, many insurance companies offer contractual savings schemes.


Insurance contracts that do not fall under life insurance are called general insurance. General insurance covers the areas of home, travel, vehicle, and health (non-life assets) from fire, floods, accidents, man-made disasters, and theft. A general insurance policy tends to provide a security blanket by protecting your many properties, like the home you live in and possessions inside it, the vehicles, machinery, and the most important thing your health, from any unforeseeable event like fire, natural disaster, accidents, damage or medical emergencies. A wide range of areas are covered by general insurance such as, Marine Insurance, Marine cargo insurance covers goods, freight, cargo, and other interests against any loss / damage suffered during transit by rail / road / sea / air (protecting imported goods). Commercial Insurance is another type of general insurance which cater all the problems of the industrial sector, arising due to business operations. Auto insurance helps to guard you against any litigation that might result from the accident. It also offers to protect your vehicle from theft, vandalism or any natural disaster. Moreover any damage caused to asset, stock or machinery, by fire, can also be insured. The health insurance company pays for medical bills, loss of income due to illness (depending upon the policies of the company). The property and casualty insurance companies provide insurance against accidents of non-physical harm to the property. This incorporates damage to personal assets, property or car accidents. General insurance covers theft, property, aviation (typically covers both property and liability coverage to aircraft), livestock and crop insurance. This incorporates damage to personal assets, property or car accidents. Moreover, an insurance company also offers special insurance policies for different businesses, depending upon the specific needs of the business.


The insurers registered in Pakistan are governed by the following laws and rules:

  • Companies Act, 2017
  • Companies (Issue of Capital) Rules, 1996
  • Insurance Ordinance, 2000
  • Insurance Rules, 2002
  • SEC (Insurance), Rules 2002
  • Takaful Rules, 2012
  • Insurance Companies (Sound and Prudent Management) Regulations, 2012
  • SEC (Microinsurance) Rules, 2014
  • Third Party Administrators for Health Insurance Regulations, 2014

Insurance company tends to protect the public however in certain instances the insurance company also requires some kind of financial security. In that cases insurance company insures itself to another company, this process is known as reinsurance. It helps to disturbs the risk to other reinsurers thus making the insurance companies to take bigger risks, as in the absence of reinsurers the insurance companies might not be willingly to take risks that are bigger/beyond their capacity.



This protects an insurer only for an individual, or a specific risk, or contract. If there several contracts / risks then they should be negotiated separately.


This is effective for a particular period of time and not on a specific risk, or contract basis. For the duration of the contract, the reinsurer agrees to cover all or a portion of the risks that may be incurred by the insurance company being covered.


The reinsurer receives a particular share of the premiums of all the policies sold by the insurance company being covered. So when the claims are made, the reinsurer will also bear a portion of the losses. The proportion of the premiums and losses that will be shared by the reinsurer will be based on an agreed percentage.


Here the reinsurer will only get involved if the insurance company’s losses exceed a specified amount, also known as priority or retention limit. The reinsurer has no proportional share in the premiums and losses of the insurance provider.


This is a form of non-proportional reinsurance. The reinsurer will only cover the losses that exceed the insurance company’s retained limit. But it only applies to catastrophic events.


The claims will be compensated only during the effective periods of reinsurance coverage, thus any losses suffered outside that coverage period would not be covered.


The insurance company can claim all losses that occur during the reinsurance contract period. The time of occurrence of losses is to be considered and not when the claims have been made.


According to The Companies Act, 2017, the following companies can register as an insurance company:

  • A public limited company;
  • A body corporate incorporated under laws of Pakistan (not being a private company or a subsidiary of a private company).

Company’s Memorandum has to be approved by the SECP before the incorporation of the company. Foreign investors can also invest with a minimum equity requirement of US$4 million.

The company should choose an appropriate name which should not go against the religious values of the people and neither is identical nor close to the name of another existing company.


The Insurance division at Securities & Exchange Commission of Pakistan (SECP), deals with the registration and deregistration of insurance companies, insurance brokers, insurance surveyors, authorised surveying officers and third-party administrators (TPA) for health insurance.

A minimum of two directors should sign the registration application with fee of PKRs 10,000 which is refundable if license is rejected.

Insurance Company should be incorporated under The Companies Act, 2017 and Statutory forms & documents that need to be submitted to the registrar are:

  • Declaration for compliance with the requirements for incorporation of the company;
  • Address of the Registered Office;
  • Particulars of Directors;
  • The Memorandum & Articles of Association according to the requirements of the Companies Act, 2017
  • A copy of the original paid Challan should be deposited in favor of SECP of the prescribed amount.
  • Proposed pattern of shareholding for meeting the prescribed minimum paid up capital requirement. The minimum paid-up capital of a newly proposed non-life insurer and general takaful operator is PKRs 300 million and for life insurance / family takaful operator it is PKRs 500 million;
  • Copies of CNIC / passport of directors
  • Copy of the letter confirming the Availability of Name issued by SECP; and
  • A Business Proposal

In case of foreign investors:

  • The name and address of the parent company with country of its incorporation;
  • The type of insurance business of the parent company;
  • Audited Annual accounts of the parent company for the last five years.



  • Minimum Paid-up Capital requirement [Life Insurer & Family Takaful: Rs.700 million and Non-Life & General Takaful: Rs.500 million];
  • Maintain a Statutory Deposit @ 10% of the Paid-up Capital with State Bank of Pakistan;
  • Compliance with the Solvency Requirements of the Insurance Ordinance, 2000;
  • Ability to meet and continue its liabilities;
  • Ability to meet and continue to meet the criteria mentioned in The Insurance Companies [Sound & Prudent Management] Regulations, 2012;
  • Evidence of appointment of a statutory auditor as approved by the Commission;
  • Evidence of appointment of an actuary, if the applicant proposes to carry on life insurance business; and
  • The applicant is able to comply with other provisions of the Insurance Ordinance, 2000.

An application has to be submitted, after obtaining the Certificate of Incorporation, to the Insurance Division of SECP for grant of Registration Certificate under Section 6 of the Insurance Ordinance, 2000, which specifies:

  • The name of the insurer;
  • The address of the principal office;
  • The name, address and occupation of the directors of the insurer and of other directorships held by them;
  • The nature of and all considerations and other benefits passing under, any agreement between the applicant and any director;
  • Names and addresses of and particulars of any business carried on by, each person holding an interest of ten percent or more in the issued share capital of the insurer;
  • A statement of the class or classes of insurance business to be carried on by the insurer and the magnitude of risk to be covered within each class;
  • Where registration is sought for life insurance, a statement of the statutory funds to be established by the insurer;
  • The name and address of the auditor of the insurer and a statement that he consents to act as auditor of the insurer (auditors should be appointed out of the list of approved auditors under Sec. 48(1));
  • For the registration of life insurance, the name and address of the appointed actuary of the insurer and a statement by the actuary that he consents to act as actuary. Qualifications of actuaries are under Rule 3 of the Securities & Exchange Commission (Insurance) Rules 2002;
  • The name and address of the bank / banks which the insurer uses or proposes to use as its principal banker / bankers;
  • The name and address of any investment custodian used or proposed to be used by the insurer;
  • Information on the company’s reporting arrangements to its own management and to the SECP;
  • A statement of the proposed reinsurance arrangements and a description on how and to what extent the expected contracts are to be insured;
  • Particulars of any agreement other than a reinsurance agreement, which the applicant has with any person or body corporate carrying on insurance business;
  • Particulars of the measures proposed by the applicant which ensures the compliance with Sec. 11 of the Insurance Ordinance, 2000 and The Insurance Companies {Sound & Prudent Management} Regulations 2012;
  • Particulars of the investment policy of the insurer;
  • Details of the affiliation / outsourcing contracts;
  • Prospective staff plan (all positions might not be filled immediately);
  • Planned commissions, benefits and incentives for agents and brokers;
  • Methods of distribution and plans for training sales personnel; and
  • Types of products and marketing methods.


Following documentation should be submitted with any application for registration for the purposes of Sec. 6(6) of the Insurance Ordinance, 2000:

  • Certified True Copy of the Certificate of Incorporation, Memorandum & Articles of Association attested by the concerned CRO;
  • Auditors Certificate in respect of paid-up capital of the company;
  • A statement from State Bank of Pakistan reflecting the statutory deposit made under Sec. 29 of the Insurance Ordinance, 2000;
  • Copies of reinsurance treaty arrangement under Sec. 41 of the Insurance Ordinance, 2000;
  • Form 29 under the Companies Act, 2017, in case of change of directorship, after incorporation;
  • Copies of Accounts, Statements and Reports laid before the shareholders;
  • Marketing literature and internal training material for sales personnel to ensure they contain no misrepresentations or abuses;
  • In respect of restricted classes of non-life insurance business, a certified copy of the published prospectus, if any, ad of the standard policy forms of the insurer and statement of the assured rates, advantages, terms and conditions to be offered in connection with insurance policies;
  • For life insurance business, following information should be included:
    • The rates, advantages, terms and conditions of the life insurance policies, including without limitation where the policy acquires a surrender value, the basis on which the surrender value is determined, and including without limitation in case of investment-linked policies a description of:
      • The investment to which the policy is linked;
      • The basis on which the benefits payable under the policy are determined;
      • The frequency and basis by which the unit values are determined, and attributed to units at the time of purchase and sale;
      • The basis which values are attributed to units at the time of and for the purpose of purchase and sale;
      • The basis on which expenses attributed to the policy are determined;
      • The basis on which charges for mortality attributed to the policy are determined;
    • A business plan highlighting the expected premium income, expenses and results for at least 10 years;
    • A copy of any written, electronic or other material proposed to be issued by the applicant for mass communication or for communication with a policyholder or prospective policyholder, in respect of life insurance policies proposed to be offered by the applicant;
    • A statement by the actuary that the terms and conditions of the life insurance contracts are practical and feasible and the business plan is reasonable;

Once the Certificate of Registration is granted to an insurer, the life insurer can mention all the classes of life insurance and non-life insurance businesses. After the registration of the company, the insurer is required to obtain a Certificate of Commencement of Business from the concerned CRO under the provisions of the Companies Act, 2017 1984 to start its business operations.


The profits and gains of a taxpayer carrying on life insurance business shall be computed separately from the taxpayer’s income from other business. The profits and gains of a life insurance business shall be the current year’s surplus appropriated to profit and loss account prepared under the Insurance Ordinance, 2000, as per the advice of the Appointed Actuary, net of adjustments under Sections 22(8), 23(8) and 23(11) of the Insurance Ordinance, 2000, so as to exclude from it any expenditure other than expenditure which is, under the provisions of Part IV of Chapter III, allowed as a deduction in calculating profits and gains of a business to the extent of the proportion of surplus not distributed to policy holders.

The following rules apply, in calculating the surplus, under Rule 2:

  • The amounts paid to, or reserved for, or expended on behalf of policy-holders shall be allowed as a deduction;
  • Any amount written off or reserved in the accounts, or through the actuarial valuation balance sheet to meet depreciation, or loss on the realization of investments shall be allowed as a deduction, and any sums taken credit for in the accounts or actuarial valuation balance sheet on account of appreciation, or gains on the realization of investments should be included;
  • Profit on debt in the inter-valuation period in respect of any securities of the Federal Government which have been declared to be income tax-free shall not be excluded, but shall be exempt from tax.

In case of general insurance the profits and gains shall be taken to be the balance of the profits disclosed by the annual accounts required under the Insurance Ordinance, 2000, to be furnished to the SECP subject to the following adjustments:

  • Any expenditure / allowance, or any reserve or provision for any expenditure, or the amount of any tax deducted at source from dividends or profit on debt received which is not deductible in computing the income chargeable under the head “Income from Business” shall be excluded;
  • Any amount either written off or taken to reserve to meet depreciation or loss on the realization of investments shall be allowed as a deduction, and any sums taken credit for in the accounts on account of appreciation, or gains on the realization shall be treated as part of the profits and gains, provided the Commissioner considers the amount to be reasonable;
  • No deduction shall be allowed for any expenditure, allowance, reserve, or provision in excess of the limits laid down in the Insurance Ordinance, 2000, unless the excess is allowed by the SECP and is incurred in deriving income chargeable to tax.

Leave a Comment

Your email address will not be published. Required fields are marked *