Open-ended mutual funds, ETFs: SECP allows insurance cos to make investment

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP), to encourage participation of insurance companies in the Exchange Traded Fund (ETF) market, has allowed insurance companies to invest in open-ended mutual funds including ETFs.

The SECP officials briefed media Friday about the implementation of this SECP Policy Board decision.

The officials informed media that after these new amendments to the Insurance Rules, 2017, the insurance companies have now been allowed to invest 10% of their total investments in any one open-ended mutual fund including units of ETF. If insurance companies choose to invest in a mutual fund and ETF, managed by the same Asset Management Company (AMC) it may invest maximum up to 15% of their total investments.

Moreover, if insurance companies already have investments with an AMC, they may also invest additional 5% of their total investments in ETFs offered by that AMC.

The insurance companies’ participation in the capital market, as institutional investors, will strengthen Pakistan’s capital market, they said.

They said that the regulatory reforms are expected to bring a paradigm shift in insurance sector regulation by creating a conducive environment for market development, alignment of the regulatory framework with international insurance supervisory standards, and strengthening the supervisory powers of the SECP.

The draft regulatory framework for registration of digital-only insurers and dedicated micro-insurers will lower the barriers to entry, and enable small and tech-based entities to enter the insurance market, thereby increasing insurance penetration in underserved markets.

With the objective to improve the market conduct and ensure the protection of policyholder’s interest, regulatory requirements in relation to the sales process, eligible investment avenues for unit-linked funds, exposure limits in particular instruments such as debt, equity, real estate, collective investment schemes, etc., and guidance on risk categorization of unit-linked funds based on the asset allocation of the fund, are proposed through an amendment to Unit Linked Product and Fund Rules, 2015, they said.

The adoption of a risk-based capital regime will help each insurance company determine the required minimum capital in accordance with risks faced by it. The graduation of the insurance sector in Pakistan from factor-based capital requirements to risk-based capital requirements will help increase the resilience of the insurance sector towards risks faced by it and improve its compliance with the international standards, they added.

Under the SRO1011(I)/2022, the admissibility of assets revealed that the insurance companies can invest units in any one open-ended mutual fund including exchange traded funds to the extent they exceed ten percent of the non-life insurer’s total investment or in case of a life insurer ten percent of the total investment of the relevant statutory fund or shareholders’ fund.

Units in all open-ended mutual funds including exchange traded funds managed by the same asset management company: In the case of units of open ended mutual funds including exchange traded funds of the same asset management company, to the extent they exceed fifteen percent of the non-life insurer’s total investment or in case of a life insurer fifteen percent of the total investment of the relevant statutory fund or shareholders’ fund.

In the case of units of exchange traded funds of the same asset management company, to the extent they exceed an additional five percent of the non-life insurer’s total investment or in case of a life insurer an additional five percent of the total investment of the relevant statutory fund or shareholders’ fund, notification added.

The SRO1011(I)/2022, to effect amendments to the Insurance Rules, 2017 and to notify the admissibility limits for investment in the ETFs, has been placed on the SECP website.

Copyright Business Recorder, 2022