The Securities and Exchange Commission of Pakistan has issued a concept paper on the issuance of subordinated debt by insurance companies and its treatment for solvency purposes, as well as a draft of proposed amendments to the Insurance Rules 2017 to elicit public comments.
The main objective of the concept paper is to examine how the issuance of subordinated debt can strengthen financial stability and enhance the risk management capabilities of insurance companies, offering them an alternative capital source. The paper also explores the characteristics and regulatory framework for subordinated debt securities, aiming to enable insurance companies to efficiently utilize eligible subordinated debt in their solvency requirements.
Issuance of subordinated debt under the proposed framework has the potential to bring several advantages to the insurance companies including the ability to maintain solvency margins, engage in alternate capital raising, enhance creditworthiness, and provide the capacity to absorb risks during financial stress. As new debt instrument issuers, insurance companies’ subordinated debt issuing can significantly contribute to Pakistan’s corporate debt market growth.
