New investment regulations for Thai insurers become effective

by DLA Piper

On 25th October 2013, new regulations became effective which govern how life and non-life insurers in Thailand may conduct investment and engage in other business. While the regulations are lengthy and detailed, we have highlighted certain key points below.

Investment administration 

An investment committee must be appointed by the insurer. It must comprise of at least three persons, who shall be

  • directors/executives, and
  • 'knowledgeable and skilled persons' who have at least three years' experience in investment management, risk management or securities analysis.

The committee has a supervisory role. Among other things, it must develop an investment policy framework and consider and approve investment plans, supervise and manage investment, oversee transparency and accountability of investments, and report investment results to the insurer's Board of Directors.

An investment unit should be developed by the insurer, responsible for the operational role in undertaking investment. Within two years, responsible person(s)/investment decision maker(s) within the unit must complete an official training course & have certain financial/economic qualifications and/or experience. Otherwise, an external party can be appointed to oversee the investment unit, which must be either a licensed personal fund manager or approved for the role by the insurance regulator.

If the investment unit is not appropriately comprised as described above, the insurer may still invest although its scope to do so is then extremely limited. 

Permitted investments

The regulations prescribe that insurers may invest in the following ways, subject to certain limitations on investment proportions:

  • bank deposits
  • equity instruments (generally, up to 10% of the total issued shares may be acquired)
  • debt instruments
  • hybrid instruments (eg convertible debentures)
  • investment units
  • futures contracts
  • structured notes
  • making loans
  • vehicle hire purchase
  • issuing avals & letters of suretyship
  • securities borrowing & lending transactions, and
  • securities buying or selling under repurchase agreements.

Conducting other business

Subject to certain conditions, insurers may engage/invest in 'other' business as follows:

  • letting or subletting real estate
  • conducting back office services
  • holding more than 10% of shares in a foreign insurer, or in a company holding shares in ASEAN insurers, with the regulator's permission
  • holding more than 20% of shares in certain insurance-related businesses (including brokerages), with the regulator's permission
  • operating certain securities businesses, with the regulator's permission.

A supervisory committee and an internal control system must be established for the conduct of other business, and income from each 'other business' must be separated according to generally accepted accounting principles.

Documents to be developed and submitted to the regulator 

The following must be developed and submitted to the insurance regulator:

  • investment policy framework & investment plan*
  • risk management procedure*
  • policy for conducting other business*
  • investment manual**, and
  • risk management procedure for conducting other business*.

* These documents must also be reviewed and resubmitted annually.

** To be developed within 90 days of the end of 2013, and submitted to the regulator within 30 days of completion.

There is also a general requirement to submit to the regulator details of any material changes to these documents within 30 days.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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