Securities and Exchange Commission of Pakistan (SECP) has warned an insurance company to strictly adhere to the provisions of the Insurance Ordinance, 2000 regarding minimum solvency requirements of the non-life insurers. It was learnt on Monday that the SECP had issued an order to dispose of the proceedings initiated against an insurance company for not complying with the provisions of Section 36 and Section 11(1)(c) of the Insurance Ordinance, 2000 (the "Ordinance").
It appeared to the Commission that the company has contravened the provisions of Section 36 and Section 11(1)(c) of the Ordinance relating to the minimum solvency requirements for the non-life insurers registered under the Ordinance, for which the Company may be punished under Section 63(1) or Section 156 of the Ordinance.
Accordingly, the show cause notice was issued on December 27, 2012 under Section 36 read with Section 11(1)(c),Section 63(1) and Section 156 of the Ordinance to the company, its Chief Executive Officer and the Directors, calling upon them to show cause as to why the direction, as provided under Section 63(1) of the Ordinance, should not be issued to the Company, and as to why the penalty, as provided under Section 156 of the Ordinance, should not be imposed upon the Company and/ or its Directors for not complying with provisions of Section 36 and Section 11(l)(c) of the Ordinance.
The SECP said that the company has linked its solvency with the raise in their paid up share capital, which has been dealt with separately in the Commission's Order under Section 28 read with Section 11(1), Section 63(4), Section 63(1) and Section 156 of the Ordinance dated September 4, 2014. In the light of the said Order, the Company's paid up share capital has increased to Rs 620,125,000-.
In this view, the solvency position subsequent to the abovementioned increase in the company's paid up share capital has to be taken into account, in order to effectively assess the response of the Company. The company's financial statements for the half year ended June 30, 2014 reflect that an amount of Rs 299,475,000 was received in consideration for right issuance, which would surely have positive impacts on the solvency position of the company.
The company's representative, while admitting that the Company was insolvent as on December 31, 2012, stated that subsequent to the increase in the paid up capital, the solvency requirements would be met automatically. The Company's representative further stated that they will not be able to meet the solvency requirements as on December 31, 2013, as it has direct linkages with the increase in the Company's paid up share capital, which is going to increase in 2014, and that by March 2014, the Company will be compliant with respect to the minimum solvency.
The SECP has carefully examined and given due consideration to the written and verbal submissions of the Company, its Directors and the Management of the Company, and have also referred to the provisions of the Ordinance. I am of the view that there has been an established default of Section 36 and Section 11(1)(c) of the Ordinance pertaining to the minimum solvency requirement till the issuance of right shares, as aforesaid.
After carefully examining the arguments and studying the facts and findings of the case as mentioned the Order, the defaults under Section 36 and Section 11(1)(c) of the Ordinance are established, which have now been rectified. Therefore, the direction under Section 63(1) of the Ordinance can be issued to the Company and / or the penalty as provided under Section 156 of the Ordinance can be imposed onto the Company, its Directors and/ or its Management for the aforementioned prolonged contravention of the provisions of the Ordinance.
In exercise of the power conferred on SECP under Section 63(1) and Section 156 of the Ordinance, the SECP instead of imposing the maximum penalty as provided therein, take a lenient view, and thus, condone the Company's Directors and the Chief Executive Officer due to the fact that the solvency position of the Company has arrived at a level where the company becomes compliant, as mentioned hereinabove. Moreover, the matter of non-compliance with the minimum solvency requirements was directly linked to the increase in the Company's paid up capital through the issuance of right shares which were issued during the first quarter of the year 2014 and that the matter of compliance with the minimum paid up share capital of the Company was subsequently dealt with by the Commission through the Order of the Commissioner (Insurance) under Section 28 read with Section 11(1), 63(4), Section 63(1) and Section 156 of the Insurance Ordinance, 2000,which was passed/announced on September 4, 2014. However, the Company is hereby issued a stern warning that in case of similar non-compliance in future a stronger action against the Company will be taken, SECP order added.
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