State Life cannot be privatised without ‘constitutional amendment’

By Kazim Alam, The Express Tribune

KARACHI: The name of State Life Insurance Corporation of Pakistan (SLIC) may appear on the website of Privatisation Commission as a government-owned entity up for grabs, but its current chairman is dead set against the privatisation of the life insurance giant that enjoys over 66% market share.

“State Life does not have a monopoly on the life insurance sector. Private companies are operating in this segment and making profits every year. It is a level playing field,” SLIC Chairman Shahid Aziz Siddiqi said while talking to The Express Tribune.

The then president – Zulfikar Ali Bhutto – nationalised 32 insurance companies and later merged and consolidated them under SLIC exactly 40 years ago. The company maintained its monopoly on life insurance until the early 1990s when private life insurance companies were allowed to operate in the country.

According to the State Bank of Pakistan, life insurance grew from a total sum assured of Rs130 million in 1949 to Rs51.7 billion in 1972, which translates into an annualised growth rate of 29.7%.

However, the company has grown at less than half that rate since the merger of all insurance companies into SLIC in November 1972. Between 1973 and 2010, its total business in force – or sum assured plus bonuses – has increased at a rate of 14% annually, which is less than half the growth rate in sum assured in the pre-nationalisation era.

Siddiqi says SLIC cannot be privatised unless a number of legal issues are addressed first. For example, he quotes the Life Insurance (Nationalisation) Order, 1972, which makes it mandatory for SLIC to distribute 97.5% of its actuarial surplus – the amount by which the company’s fund exceeds the amount it must pay out in benefits – among its policyholders while 2.5% is paid out to the government as dividends every year.

This is in contrast with the rules for private life insurance companies, which are required to distribute 90% of their actuarial surplus among their policyholders, he says. “In order to privatise SLIC, the legislature must pass an amendment to the constitution,” he says, adding SLIC is also required by law to declare a bonus every year for holders of its with-profit insurance policies, unlike companies operating in the private sector.

Insisting that Life Insurance (Nationalisation) Order, 1972 is part of the constitution, Siddiqi says it cannot be modified with a simple majority in parliament. “You need two-thirds majority to change the constitution,” he says.

However, some lawyers The Express Tribune spoke to have a different take on this issue. They believe the issue can be resolved by a simple parliamentary vote rather than a constitutional amendment needing a two-thirds majority.

“The Life Insurance (Nationalisation) Order, 1972, is actually part of the first schedule of the constitution, which pertains to laws exempted from the operation of Article 8(1) and (2). Since it is part of a schedule, I believe a two-thirds majority is not required in this case,” said a corporate lawyer, requesting anonymity.

Published in The Express Tribune, October 22,  2012.

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