Insurance companies allowed issuing contracts of guarantees/bonds

The Securities and Exchange Commission of Pakistan (SECP) has allowed insurance companies to issue contracts of guarantees/bonds including custom bonds, fidelity bonds, mobilization advance guarantee, administration bonds and payment bonds to a party or a group. In this regard, the SECP has issued S.R.O. 696 (I)/2018 to notify "Credit and Suretyship (Conduct of Business) Rules, 2018" here on Tuesday.
Under the said rules, "insurer" means a non-life insurer who is registered under the Insurance Ordinance.
The SECP said that an insurer''''s net retained exposure under any type of guarantee/bond issued by the insurer to a party or a group shall not exceed 2.5 percent of the insurer''''s shareholders'''' equity as per the latest available audited accounts of the insurer on the date of issuance of a guarantee/bond. Subject to limit prescribed, an insurer shall procure collateral in case of guarantees/bonds of an amount equivalent to at least 80 percent of the sum insured/amount of bond/guarantee less reinsurance in respect of a particular guarantee/bond. An insurer shall, at all times, ensure that the aggregate net retained exposure on all outstanding and in-force guarantees/bonds, on which these rules apply, shall not exceed the greater of 100 percent or such other percentage as the Commission may notify from time to time through notification, of the insurer''''s shareholders'''' equity.
The SECP stated that the guarantee/bonds issued shall not be construed as bank guarantees issued by commercial banks and such guarantees/bonds shall be claimable in accordance with the terms and conditions provided in the contract of guarantee; The insurer shall clearly state such disclaimer on the contract of guarantee while issuing guarantees/bonds. All types of guarantees/bonds as mentioned are mutually exclusive, that is to say that in case of any difficulty in classifying a guarantee under any of these types of guarantees/bonds, the one, which is the most relevant, shall prevail. Every guarantee/bond issued by an insurer shall explicitly state the date of expiry of that guarantee/bond, and the sum insured/amount of guarantee/bond shall be capped, which shall also be explicitly stated in the guarantee/bond contract.