ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has put forward a series of reforms aimed at bolstering the safety, clarity, and reliability of insurance bonds and guarantees. The proposed changes are expected to impact a range of areas including construction projects, government contracts, public procurement, and trade.

According to Securities and Exchange Commission of Pakistan, the new framework addresses key financial instruments such as bid and performance bonds, mobilization advance guarantees, and customs guarantees issued by insurers. These instruments are crucial in offering financial protection to government departments, project owners, and commercial entities in cases where contractors or businesses fail to fulfill their contractual obligations.

The reforms suggest the implementation of clearer conditional and unconditional guarantee contracts, alongside enhanced solvency and reserving requirements. They also propose risk-based pricing, mandatory indemnification agreements, and adequate reinsurance arrangements, all of which are designed to mitigate contractual ambiguities, expedite claim settlements, and reduce the likelihood of prolonged litigation.

Furthermore, the SECP has proposed designating credit and suretyship insurance as a restricted class of insurance business. This classification is intended to allow for closer scrutiny of insurers and ensure that only financially capable companies engage in such business.

SECP Chairman Dr. Kabir Ahmed Sidhu stated that the reforms are poised to strengthen risk management and insurers’ financial capacity, while also improving contractual clarity and boosting public confidence in insurance-backed bonds and guarantees.

The SECP has invited feedback from insurers, contractors, businesses, government entities, and other stakeholders on the Consultation Paper, which is currently available on its website.