Thailand introduces greater liberalisations measures to open up foreign investment in the insurance sector
Earlier this year, Thailand’s insurance regulator, the Office of Insurance Commission (OIC), published drafts of two new pieces of legislation that, when passed, will overhaul insurance regulation in the country and relax existing foreign shareholding limits in a move that is expected to modernise the Thai insurance market. The new Life Insurance Act and Non-Life Insurance Act (collectively the “Draft Insurance Acts”) would repeal and replace the current Life Insurance Act B.E. 2535 and the Non-Life Insurance Act B.E. 2535.
The Draft Insurance Acts, when passed, will bring Thai insurance regulation in line with the measures that currently regulate commercial banks and other financial institutions (FIBA).
Broadly the principal changes introduced in the Draft Insurance Acts are as follows:
- further relaxation of requirements for foreign participants;
- greater flexibility to effect portfolio transfers;
- new reporting/compliance requirements;
- more flexible capital controls; and
- greater director accountability.
In this article we focus on the impact of the measures to relax foreign investment in the Thai insurance market.
The Draft Insurance Acts anticipate that Thailand will enter into a greater number of bilateral treaties as the benefits of many of the relaxation measures enabling foreign participation in the Thai market are only available to insurers based in a jurisdiction recognised under such treaties.
Further relaxation for foreign participants
Forms of business entity
Under existing legislation, the forms of business entities which can apply for an insurance licence in Thailand are limited to a Thai incorporated public limited company (Thai PLC) or a branch of a foreign incorporated insurer (Foreign Branch). Under the Draft Insurance Acts, in addition to a Thai PLC and a Foreign Branch, the following forms of business entities would also be eligible for an insurance licence:
- a Thai PLC with at least 95 per cent of its shares held by a foreign insurer (“Foreign Subsidiary”); and
- any other form of entity, such as a mutual society (“Other Form”).
It is important to note that, as a matter of policy, the OIC is currently not issuing new insurance licences. The OIC’s policy on the issue of new insurance licences should be monitored in parallel with developments of the Draft Insurance Acts.
Foreign shareholding restrictions
Under the current law, non-Thai companies can hold up to 25 per cent of the total issued shares of a Thai insurer without any specific regulatory approval. OIC has the discretion to permit foreign shareholdings above 25 per cent, but only up to a limit of 49 per cent. The Ministry of Finance (MoF) (with the recommendation of the OIC) currently has the discretion to permit foreign shareholdings above 49 per cent in the event that the status or operations of the insurer (without such investment) might cause damage to insureds to or the public; to enhance the insurer’s operations; or to enhance the insurance sector as a whole.
Under the Draft Insurance Acts, foreigners will be able to hold less than 50 per cent of the total issued shares of a Thai insurer without any specific regulatory approval, removing the above thresholds. Specific approval from the MoF is still required for foreign shareholdings of more than 50 per cent, but the criteria for such approval have been expanded to be in line with FIBA. MoF (with the recommendation of the OIC) would have the discretion to permit foreign shareholding at, or above, 50 per cent in the following situations:
- to rectify the operations of the relevant insurer;
- to strengthen the financial stability of the relevant insurer;
- to protect the interests of the insured or any person who has a claim under the policy; or
- to ensure the stability of the insurance sector.
Under the Draft Insurance Acts, the restrictions on foreign shareholdings (and similar restrictions on foreign directors) do not apply to any insurer which is:
- a Thai PLC which is majority owned by shareholders based in a country recognised under a relevant bilateral treaty with Thailand;
- a Foreign Branch;
- a Foreign Subsidiary; or
- an insurer which operates under Other Form.
Foreign insurers writing policies
There is a general prohibition currently against any person issuing an insurance policy in Thailand without an insurance licence from the OIC. Under the Draft Insurance Acts, there is a specific exception to this prohibition to enable an insurer, not licensed by the OIC but licensed in a country recognised under a bilateral treaty with Thailand, to issue an insurance policy in Thailand. However, it is unclear from the provisions of the Draft Insurance Acts whether the eligible insurer would be required to comply with any registration or notification requirement and/or other regulations of the OIC in respect of the policies issued in Thailand. We expect the detailed requirements to be set out in regulations to be issued to implement the scheme. In addition, if the eligible foreign insurer will have a presence in Thailand it would be required to obtain a license under the Foreign Business Act B.E. 2542 (FBA), unless a specific exemption under the FBA would also be introduced.
For further information please contact Sarah Chen in Bangkok.