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No one get insured property, interest outside country: SECP

No one get insured property, interest outside country: SECP

f-17 pafThe Securities and Exchange Commission of Pakistan (SECP) has observed that no person shall get insured any property or interest outside Pakistan under Rule 23(1) of the Insurance Rules, 2002. It is learnt on Monday that the SECP Appellate Bench comprising SECP Chairman Tahir Mahmood and Commissioner (SMD) Imtiaz Haider, has given these observations while deciding a case pertaining to the insurance of four PAF JF-17 aircraft by an insurance company.

The relevant Rule 23(1) of the Insurance Rules, 2002 says as; for the purposes of sub section (1) of section 165 of the ordinance, no person shall insure outside Pakistan any risk or part thereof in respect of any property or interest which is located in Pakistan at the time insurance is effect. (2) The federal government may grant exemption to any person from the requirement of sub rule (1), it added.

According to the SECP’s recently issued order of the Appellate Bench, an insurance company applied for NOC for insurance of four JF-17 aircraft. In response the SECP informed the company that insurance of the said aircraft have to be placed with National Insurance Company Limited (“NICL”) in terms of section 166 of the Insurance Ordinance, 2000 (the “Ordinance”). The company made an application for provisional approval of the commission for placement of 100 percent of the risk, ie, aircraft, facultative abroad. The coverage spanned 12 days. It was revealed that the company had underwritten Third Party (Bodily Injury/Property damage) Legal Liability (Aviation Liability) insurance cover for the aircraft. The Commission asked the company to submit the acceptance/regret slip issued by NICL. The company submitted its response stating that the project will be financed out of non-public funds, therefore, No Objection Certificate (“NOC”) from NICL is not required. The company further stated that under section 166(3) of the Ordinance it is the option of the insured to place all such marine, aviation and transport risks with the insurers, other than NICL, where the risk is financed out of an external loan or external aid.

Show-cause notice under section 166 read with section 156 of the Ordinance was issued to the company and its CEO and directors. The respondent (Insurance Division SECP), dissatisfied with the response of the appellants, passed the impugned order and imposed a penalty of Rs 100,000 on the CEO of the company and a fine of Rs 200,000 on the company. The management of the company was warned to exercise due caution in future. The company was also directed to cancel the policy issued and to furnish to the Commission the endorsement from the policyholder for the effect of this cancellation along with evidence of refund of premium and any other such documents deemed necessary for this purpose.

The Insurance Division informed the bench that the company asked for permission for the Third Party Insurance regarding the aircraft. The Commission in its reply letter on the same date informed the Appellants that the Aircrafts being public property fall under section 166 of the Ordinance and the Appellants were not competent to extend the third party cover to the public assets. Section 166 of the Ordinance provides in an unequivocal way that all non-life insurance business pertaining to public property which includes third party liability insurance will be placed with NICL only. Section 165 of the Ordinance is not relevant to the facts of the ease and states that the federal government may make rules by imposing conditions on the ability of any person to insure outside Pakistan in respect of any property or interest located in Pakistan, it added.

The Appellants (company) have preferred to file the instant appeal against the Impugned Order. The SECP has heard the parties in the light of section 165, 166 of the Ordinance and rule 23 of the Rules. The SECP is of the view that section 165 of the Ordinance is applicable in a situation when a person or company outside Pakistan insures a property located in Pakistan and is, therefore, not attracted to the facts of the instant case.

Rule 23 of the Rules was made in consonance with section 165(1) of the Ordinance, when the rule is read as a whole. Rule 23(1) of the Rules prohibits insurance of any property or interest outside Pakistan, however, rule 23(2) of the Rules lays down the conditions for exemption. The SECP do not see any conflict between section 165 of the Ordinance and rule 23 of the Rules made thereunder.

As stated in Impugned Order, the CEO of the company submitted to the respondent that he was responsible for the decision to extend insurance for third party liability associated with the aircraft and that none of the directors of the company had taken any part in the said decision. The SECP are of the view that the CEO of the company has not caused any loss to the company or its shareholders and has acted in good faith by taking responsibility for his actions. In view of the observations, penalty to the extent of CEO is set aside. The company is strictly directed to comply with the provisions of the Ordinance in future, the SECP order added.