Two insurance companies barred from Pakistan’s guarantee market. Both returned to business after court orders. The regulator now proposing to tighten the rules so it cannot happen the same way again.
That is the backdrop to a consultation paper the Securities and Exchange Commission of Pakistan (SECP) released Wednesday, proposing that credit and suretyship insurance be reclassified as a restricted class of insurance business – a move that would give the regulator stronger legal footing to screen out insurers that do not meet financial and operational standards before they write these risks.
In December 2024, the SECP ceased the guarantee business of Crescent Star Insurance Limited after finding it had issued guarantees amounting to PKR 229 billion without the required collateral or any valid reinsurance arrangements, according to an SECP press release. Crescent Star challenged the direction in the Islamabad High Court – and won. The court declared the SECP’s directions void, and the company restarted its guarantee business.
A parallel case unfolded with United Insurance Company of Pakistan Limited. The SECP halted its guarantee business in May 2025, citing refusal to honour PKR 2.2 billion in guarantees and complaints from guarantee holders totalling PKR 822 million, according to Profit/Pakistan Today. United Insurance also went to court, and the Islamabad High Court suspended the SECP’s directives, allowing the company to resume operations.
Both companies are back in the market. The SECP’s enforcement tools under the current Insurance Ordinance 2000 were not sufficient to keep them out.
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The consultation paper covers bid and performance bonds, mobilisation advance guarantees, and customs guarantees – instruments used in construction contracts, government procurement, and trade finance. They are the financial backstop that project owners and public agencies rely on when a contractor defaults.
The proposed restricted-class designation would allow the SECP to apply tighter pre-qualification standards, rather than relying on post-breach enforcement that, as both cases demonstrated, can be reversed through litigation.
The proposals also include stronger solvency and reserving requirements, risk-based pricing, mandatory indemnification agreements between insurers and their principals, and minimum reinsurance arrangements – the same areas where Crescent Star and United Insurance were found to be non-compliant.
Clearer definitions of conditional and unconditional guarantee contracts are also proposed, targeting the contractual ambiguity that has fed non-payment disputes.
SECP chairperson Dr. Kabir Ahmed Sidhu said the reforms are designed to strengthen risk management and insurers’ financial capacity, improve contractual clarity, and enhance public confidence in insurance-backed bonds and guarantees.
For brokers placing surety or construction-linked risks in Pakistan, the enforcement history carries a direct lesson for counterparty due diligence.
Verification of reinsurance arrangements – not just their existence on paper – is a documented issue in this market. The SECP’s December 2024 press release noted that when Crescent Star claimed to have reinsurance in place, the regulator contacted the reinsurer directly, which denied any such arrangement existed.
Pakistan’s non-life insurance and general takaful segment generates premiums of PKR 245 billion, with claims of PKR 70 billion and assets of PKR 720 billion, according to Dawn. Surety and credit insurance represent a fraction of those figures – but carry concentrated exposure on high-value public contracts where non-payment has significant financial consequences.
If the restricted-class designation raises the solvency bar and prompts some insurers to exit the segment, available local capacity could narrow. That would affect smaller contractors in particular, which tend to rely on domestic providers for bonding support.
The surety proposal sits within a broader regulatory push. In May 2026, the federal government introduced the Insurance Bill 2026 in the National Assembly – legislation developed by the SECP to replace the Insurance Ordinance 2000, which has governed the sector for 25 years. The bill is designed to open the market to foreign insurers and reinsurers through branch structures, Arab News reported.
That reform effort comes against a persistent underinsurance backdrop. According to the Competition Commission of Pakistan’s 2025 report on the state of competition in Pakistan’s insurance industry, the country’s insurance penetration stood at 0.87% of GDP in 2022 – against a global average of 6.7% and roughly 4% in both India and China.
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The SECP has invited insurers, contractors, businesses, government entities, and other stakeholders to submit comments on the consultation paper, which is available on the commission’s website. No submission deadline was stated.
The proposals are at consultation stage. But the pattern is already instructive: in Pakistan’s current surety market, enforcement after the fact has limits that can be tested – and overturned – in court. The proposed reforms are an attempt to shift that equation upstream.
