Thailand - New Law Regulating Investment In Other Business Of Insurance Companies

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The current regulations governing the investments of insurance companies are (i) the Notification of the Ministry of Commerce Re: Investment in other business by insurance companies B.E. 2547 (2004) and its amendments, and (ii) the Notification of the Office of Insurance Commission Re: Investment in other business by insurance companies B.E. 2553 (2010) and 2554 (2011), prescribing the types of investments and businesses an insurance company can invest and conduct whether domestic or abroad.

The Office of Insurance Commission (OIC) is planning to revise such and announce new regulations in July 2013. Understanding that investments in other types of business of insurance companies are deemed to be important to a companies' operation and strength, the OIC, therefore, has come up with new regulations which this time, give more attention to how the company (Board of directors) controls the investment and engagement in other business in accordance with the circumstances in consideration of stability, financial status, performance of the company including good government and risk management.

In this new regulation, the OIC has clearly divided the activities into two main groups; 'investments' and 'engaging in other businesses.'
Investments
Subject to investment ratio, the new regulation provides that an insurance company may invest, hold or enter into a contract relating to:
  • depositing money with banks;
  • debt instruments;
  • hybrid instruments;
  • equity instruments;
  • investment units;
  • advance sale agreement;
  • structure note;
  • extending loan, leasing out cars on hire-purchase, giving aval to bills and issuing letter of guarantee;
  • executing securities borrowing or lending transactions; and
  • executing securities buying or selling transactions under repurchase agreements.

Engaging in other businesses

Subject to certain conditions, other business on which insurance companies can make investments under the new regulation are:

  • leasing out land and property;
  • providing back office services and other business relating to contacting and introducing services of securities companies and commercial banks;
  • holding more than 20 percent of the total shares issued in limited companies for the purpose of conducting other business; and
  • conducting securities business.

The OIC has also prescribed new rules that insurance companies, by the Board of directors, must appoint an investment committee to look over the investment operation of the company.

The Investment Committee must comprise of at least three persons consisting of:
  • a director or executive; and 
  • persons with expertise and experience of not less than three years in investment management, risk management or securities analysis, who may be an executive or third party.
The followings are items which insurance companies are required to prepare (and be approved by the Board of directors of the company) within 180 days from the date the notification becomes effective and submit with the OIC within 30 days from the date the Board of directors have approved and thereafter, revise and resubmit with the OIC at least on a yearly basis:
  • Investment policy framework;
  • Investment plan;
  • Risk management plan for investment; 
  • Engagement in other business policy; and 
  • Risk management plan for engaging in other businesses. 

While these new rules and regulations are intended to raise standards within the insurance market to meet international standards and to make the market ready for the Asean Economic Community in the next couple of years, they may also have significant effect for insurance companies both life and non-life (especially those 'small size players').

This blog was authored by DLA Piper Consultant, Jonathan Goacher and DLA Piper Senior Associate, Nimon Chandhrakul.