On 18 January 2017, the Ministry of Finance (MOF)’s notification was published in the government gazette, which liberalised the restrictions concerning the participation and ownership of foreign entities in the Thai insurance companies, with immediate effect.
The new measures allow a licensed insurance company (selling both life and non-life insurance) in Thailand to seek permission from the Finance Minister to have foreigners or foreign companies:
- Control more than 49% (up to 100%) of the shareholding of the insurance company
- Comprise more than half of the board of the directors of the company
This is a notable shift, but it is in line with the MOF's growing liberal approach that we have seen in recent years. In early 2015, the Office of Insurance Commission (OIC) was given the discretion to approve foreign entities' application for permission to control up to 49% (compared to the requirement of not less than 25% at the time) of the voting shares in an insurance company and more than a quarter, but less than half, of the total number of directors on the board.
Requirements to apply for permission
The MOF has issued the following requirements that a foreign entity or shareholder must satisfy to be eligible to apply for permission:
- Be either an insurance company, or one that supports, or is very clearly related to the insurance sector
- Have at least 10 years of experience in the insurance sector
- Be financially stable with a credit rating of at least "A", issued by a respected international agency. If the foreign shareholding company does not have such a rating, its parent must
- Possess clear and methodical business operation and technology transfer plans for the development of its insurance business in Thailand
- Be sufficiently financially capable to help support, stabilise and develop its Thai insurance company and the insurance industry
If the Finance Minister grants an application to a foreign entity or shareholder, the insurance company will be required to maintain an available capital of the following:
- At least THB 1 billion (circa $ 28.3 million) for a non-life insurance provider
- At least THB 4 billion (circa $ 113.3 million) for a life insurance provider
It is important for any potential applicants to consider the capital requirements well in advance before devoting time, monies and resources into the application process, even though the capital requirements would only apply after the Finance Minister grants permission.
- Foreign entities or shareholders that fulfil the criteria may send their applications and associated documents to the OIC for consideration
- The OIC will evaluate the documents received and may make further information requests
- Within 90 days after deeming the submissions complete, the OIC will make a recommendation on whether the Finance Minister should grant the application
- Within 90 days of receiving the OIC's recommendation, the Finance Minister will either grant or deny the application
- It is difficult to predict the amount of time and resources that applicants may have to devote to obtain permission, given that the MOF has not yet made its application form available
- The Finance Minister, upon granting an application, may impose additional rules and time conditions at their discretion
- It is necessary to obtain the Finance Minister's prior approval, before insurance companies make any material changes to its shareholding structure
- There is currently no way of determining whether the application process will indeed function efficiently and within the prescribed timelines, given they were only just announced
- Any material variation to the approved structure as stated in the application will require the Ministry of Finance's further approval
When the MOF issued the previous notification allowing increases in foreign ownership rights of insurance companies up to 49%, many insurance companies took advantage of this, made applications and successfully received permission to do so from the OIC. While it cannot be guaranteed that this will carry over to the latest MOF notification, the recent relaxation of foreign ownership rules in Thai insurance companies do indicate the MOF's and OIC's increasingly liberal attitudes towards such applications.
There is, however, a key distinction between the 2015 amendments and the new 2017 Regulations. Under the previous 2015 rules, the OIC had discretion to review and grant applications for foreign entities to control up to 49% of a Thai insurer. The new 2017 rules however, require the MOF to take on a greater role in the approval process, in which the MOF ultimately decides, on the recommendation of the OIC, to approve or decline an application.
Overall, the new 2017 rules represents a step forward for the insurance industry in Thailand as the country further opens its economy to foreign investment. It remains to be seen whether the MOF intends to conduct an intense scrutiny into the recommendations of the OIC, or whether it will merely follow the advice of the OIC.