China Pakistan Economic Corridor (CPEC) provides a unique opportunity for Pakistan, Afghanistan, and Central Asia – and even India if it grasps the moment – to bolster trade, economics, and regional connectivity.
But this is not merely about states; this is about business organizations, corporations, investors, financial institutions that are now in the process of creating infrastructures and jobs for countless thousands. And as men work, structures are built, and materials are moved across huge distances, insurance companies are needed to cover the risk of lives, equipment, and investments. All this interests NICL.
National Insurance Company Ltd (NICL), which the Government of Pakistan wholly owns, has been functioning under the administrative control of the Ministry of Commerce and exclusively providing strategic risk coverage to the public properties and assets since its inception in 1976 as a corporation.
NICL was transformed into a more dynamic entity when it was incorporated in Pakistan on 31 March 2000 as a public limited company under the Companies Ordinance 1984 through NIC (Reorganization) Ordinance 2000. While it continues to provide general insurance to assets of the federal and provincial governments, it can now also offer its services to corporate bodies in the private sector.
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NICL is governed by its vision, “to excel in providing insurance and other financial services, enhance growth, profitability and shareholders’ equity through the development of human resource, technology, and adherence to sound corporate governance.”
Its objectives are to: provide insurance cover to the government and semi-government organizations at an economical cost, reduce outflow of foreign exchange by reducing dependence on reinsurance abroad, make significant contributions to the public exchequer by payment of taxes & dividends, and make prudent investments in public as well as the private sector to obtain maximum returns.
FBR data of the past five years (2016-2020) reveals that, on average, 30 percent of the tax from the Insurance industry was paid by NICL alone; in 2020, NICL’s tax share was 40 percent.
NICL is insuring virtually all the large infrastructural projects that have a strategic national importance, besides all movable and immovable properties of Federal & Provincial Governments. NICL is an exclusive insurer of public properties and assets as well as where a financial interest of the Government of Pakistan is involved, as per Section 166 of the Insurance Ordinance-2000.
A table with this article outlines NICL’s portfolio that consists of some of the largest private and public sector entities in Pakistan. NICL manages this through its excellent relations with “reinsurers” in the international market. With the progress of CPEC, NICL now sees opportunities of working with large Chinese “Reinsurers.”
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To avail new opportunities and meet ever-changing market demands, insurance companies need to invest in human resource development and innovation continuously. And have to introduce new products and enhance service standards to effectively cover the risk of new foreign companies investing in Pakistan. NICL, given its portfolio and stability, is geared up to meet these requirements and is standing on sound and viable financial footings to serve large corporations.
Given its mandate under Insurance Ordinance -2000 (Sec. 166), its large equity, its size, reach, and international partnerships, National Insurance Company Limited (NICL) is thus a proud insurance partner of the Government of Pakistan to provide strategic insurance coverage to the CPEC’s vital projects and other strategic assets of the Government of Pakistan.
The Chinese companies and investors need insurance to mitigate risks for their infrastructure projects, and NICL is ideally placed to provide this. Consequently, it generates a volume of insurance revenue for the insurance sector from areas where there was little activity earlier.
It is an achievement for NICL to be part of the beginning of a new era of CPEC under the Ministry of Commerce’s “Silk Route Reconnect Policy” to promote trade of Pakistan with neighbouring and other countries to support the vision of the Prime Minister of Pakistan.
Under this policy, NICL entered a partnership with the National Logistic Cell (NLC) on the historic occasion of commencing Transports Internationaux Routiers (TIR) operations by road to Turkey and Azerbaijan in Sept.2021.
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NICL has a sound financial base with properties and funds under-investment in excess of Rs. 60 billion. It maintains investments in commercial properties, offices across Pakistan and in DFIC, Dubai. The gross written premium of NICL in the year 2016 was Rs. 5.5 billion, in 2019, it was Rs. 10.6 billion, in the Year 2020 was Rs. 15 billion and by the end of the year 2021 stand at above Rs. 20 billion.
This is an increase of around 100 percent compared to the Year 2019 and 33.33 percent compared to the Year 2020, whereas the overall insurance industry growth is very minimal. As mentioned earlier, during the same period (2016-21), on average, NICL alone paid around 28.5 percent of taxes in comparison with the whole insurance industry, whereas alone in year 2020 NICL tax share was 40 percent in comparison to the insurance industry in Pakistan. With constant growth, NICL is strengthening its equity, allowing it to retain risks to a large extent and provide good returns to its stakeholders.
Under its present management, NICL is striving to further streamline all its operations as per best international practices and strengthen its image amongst national and international corporates. To achieve this goal, NICL has revamped its internal controls and procedures to align them with the best practices of the modern insurance industry.
NICL: Facing Unexpected Challenges?
Despite its exemplary contributions to the national exchequer, NICL is facing its most difficult challenges not from its competition in the market but from the sections of the government where certain notifications of Security and Exchange Commission (SEC) in violation of the Insurance Ordinance 2000 have created unexpected challenges for NICL’s business model and official mandate.
Under Section 166 of the Insurance Ordinance 2000, all public assets and risk is mandatory to be placed with NICL for insurance. As per Section 166 (3) of the Insurance Ordinance, 2000 (the “Ordinance”) “…all insurance businesses relating to any public property or to any risk or liability pertaining to any public property, shall be placed with the Company [i.e., NICL] only and shall not be placed with any other insurer”.
Section 166 (2) (b) of the Ordinance, describes the term “public property” as any property, movable or immovable, which belongs to, or the safety of which is the legal responsibility of a Federal or Provincial Government or any institution thereof or any organization managed, controlled or owned by or interest of which is specified by the Federal or Provincial Government or any intuition thereof.
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A bare reading of the aforesaid laws indicates that all insurance business pertaining to public properties, assets, and interests is legally required to be placed with NICL only. Yet certain notifications of SEC, in 2016, have created a new situation that violates the essence of Insurance Ordinance 2000 and is threatening the business model of NICL.
Interestingly, the Securities & Exchange Commission of Pakistan (SECP) vide Circular No. 1 dated 04-01-2016 had initially drawn the attention of all non-life insurers toward the provisions of section 166 (3) (4) and (5) of the Insurance Ordinance, 2000.
Accordingly, it was notified that Section 166 of the Insurance Ordinance, 2000 deals with the insurance of the public property and all the risks and liabilities appertaining to the public property.
It was rightly clarified that all “Contractors’ All Risks Insurance and Erection All Risks Insurance Policies” procured by the private contractors who the Federal Government engages, Provincial Government, statutory corporations, and other public sector institutions for construction/renovation/maintenance of the ‘public properties’ have to be issued only by the National Insurance Company (NICL) in conformity with the provisions of section 166 of the Insurance Ordinance, 2000.
In the said Circular it was asserted that all such insurance policies which fall within the scope of section 166 of the Insurance Ordinance, 2000 have to be issued by NICL only unless an exemption under section 166 (4) of the Insurance Ordinance, 2000 is granted by the Federal Government, or NICL declares in writing that it is not able to issue such insurance policies.
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But contrary to the law (Insurance Ordinance, 2000) and above Circular No. 1 dated 04-01-2016, SECP issued another Notification dated 04-03-2016 that Contractor’ All Risks (CAR) and Erection All Risks (EAR) policies cover physical damage to the contractor works, equipment and machinery in relation to the construction work, therefore, the risks covered by CAR and EAR policies shall not be treated as insurance in respect of ‘property’ belonging to, or liability appertaining to the government.
Could SECP be confused on Insurance Ordinance 2000?
Can a responsible state organ-like SECP be misinterpreting the law? This boggles the mind, but it may not be out of order to point out that most government officials and civil servants have never fully understood the spirit of the Insurance Ordinance 2000 and its strategic place in supporting the country’s economic and tax architecture.
Ministry of Commerce via Office Memorandum No.2 (48)/2009-Ins dated 14.7.2009 and Office Memorandum No.2(48)/2019NICL-Ins dated 5.10.2020 (the “OMs”) had referred to Sec. 166 of Insurance Ordinance 2000 and observed that “…most of the Government functionaries working in the Federal and Provincial Governments are ignorant of the above statutory requirement. This has not only led to heavy loss of revenue to the government but also exposed the public assets to irreparable risk.”
Ministry of Law and Justice of the Government of Pakistan has also opined on the above-captioned matter via its Office Memorandum No. 82/2020-Law-1 dated 12.5.2020 ( the “MoLJ Memo”).
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As per the MoLJ Memo, it was, inter alia, noted that (i) the Ordinance is a special law on insurance whereas the Public Procurement Regulatory Authority Ordinance, 2000 is a general law regarding procurement and; (ii) the Superior Courts of Pakistan have consistently held that a special law always prevails over a general law.
In view thereof, the MoLJ Memo further stated that “…the Insurance Ordinance, 2000 should be implemented for insurance which falls within the definition of ‘public property’ as defined in section 166(2) of the Insurance Ordinance, 2000” and as per Section 166 (3) of the Insurance Ordinance, 2000 “…all insurance businesses relating to any public property or to any risk or liability pertaining to any public property, shall be placed with the Company [i.e., NICL] only and shall not be placed with any other insurer.”
In view of the above, it is evident that the assets, properties, projects, works (the contractors may carry out construction, renovation, or maintenance) having vital and strategic importance, and equipment, etc. interest whereof belonging to your organization fall within the definition of “public property” specified in Section 166 (2) and (3) of the Insurance Ordinance, 2000. And these have to be insured with NICL only pursuant to Section 166 (2) (b) and (3) of the said Ordinance.
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Consequent to the issuance of Notification dated 04-03-2016 by SECP, NICL has now recently taken up this matter with the Ministry of Law & Justice through the Ministry of Commerce and raised serious objections on the legal authority of the said Notification and incorrect interpretation of Section 166 (2) (b) and (3) of the Insurance Ordinance. NICL hopes that the issue will be resolved soon to serve unfettered national and international corporates and investors associated with the CPEC as per its original mandate and serve the national exchequer to its full capacity.