Thailand: Clarification on insurance companies' investment opportunities - Guidelines for investments in equity instruments

12 Sept 2023    4 minute read
Topics Insurance

In brief

Insurers are to be allowed to invest in equity instruments (i.e., shares) in other corporate entities, subject to certain rules and conditions, and where previously there was a lack of clarity on the approval process. The Office of Insurance Commission (OIC) has just issued three new guidelines to provide more clarity on approval for investment in the following:

  • Up to 10% of the total onshore equity instruments not traded on any local or international stock exchange, or offshore equity instruments of a foreign incorporated entity, issued by the target entity.
  • 20% or more of the total equity instruments of a licensed life insurance corporate broker (for investments by a licensed non-life insurer), or equity instruments of a licensed non-life insurance corporate broker (for investment by a licensed life insurer), issued by the target entity.
  • 20% or more of the total equity instruments of a company incorporated for the benefit of the insurance business as a whole, issued by the target entity.

Contents

In more detail

To be entitled to make these investments, the insurer must have the following qualifications:

To invest in up to 10% of the total onshore equity instruments not traded on any local or international stock exchange, or offshore equity instruments of a foreign incorporated entity

Qualifications of the insurer making the investment:

  • Capital Adequacy Ratio (CAR) not less than the minimum legal requirement.
  • Liquidity ratio (liquid assets per insurance reserve) not less than 110% for the last four consecutive quarters and throughout the period it holds the equity instruments.
  • Retained deficit of not more than half of the total equity.

In making the investment:

  • The insurer must provide supporting documents (e.g., corporate approval, details of the target company, cost-benefit analysis, feasibility study, valuation report) to seek OIC approval.
  • The OIC will consider the application within 30 days from receiving the application and all supporting documents.
  • The investment must not be for the purpose of circumventing the applicable investment requirements.
  • The insurer will need to explain the reasons and the necessity for making the additional investment.
To invest in 20% or more of the total equity instruments of a licensed life insurance corporate broker (for investment by a licensed non-life insurer), or equity instruments of a licensed non-life insurance corporate broker (for investment by a licensed life insurer)

Qualifications of the insurer making the investment:

  • CAR not less than the minimum legal requirement in the last four quarters.
  • Sufficient excess capital fund.
  • Liquidity ratio (liquid assets per insurance reserve) of not less than 110% for the last four consecutive quarters and throughout the period it holds the equity instruments.
  • Investment policy covering this specific investment.
  • Sufficient operational system, staff, administration, risk management, and relevant information.
  • Measures in place to prevent conflict of interest between the insurer making the investment and the target company. 
  • Retained deficit of not more than half of the total equity.

In making the investment:

  • The insurer must provide supporting documents (e.g., policy for investment in other businesses, corporate approval, objective, business operation of the target entity, business plan of the target entity, details of the investment ratio, cost-benefit analysis, feasibility study, valuation report, and insurance brokerage license of the target entity) to seek OIC approval.
  • The OIC will consider the application within 30 days from receiving the application and all supporting documents.
  • The OIC may impose conditions when granting approval, with which the insurer must comply.
  • The investment must not be for the purpose of circumventing the applicable investment requirements.
  • The insurer will need to explain the reasons and the necessity for making the additional investment.
To invest in 20% or more of the equity instruments of a company incorporated for the benefit of the insurance business as a whole

Key definition:

  • Business conducted for the benefit of the insurance business is defined as a business that contributes to the development, enhancement, provision of service, or facilitation of insurance companies or the insurance industry as a whole (e.g., providing services for actuarial insurance, claims management, insurance academic institutions, data collection and processing, and user identification).

Qualifications of the insurer making the investment:

  • CAR not less than the minimum legal requirement in the last four quarters.
  • Sufficient excess capital fund.
  • Liquidity ratio (liquid assets per insurance reserve) of not less than 110% for the last four consecutive quarters and throughout the period it holds the equity instruments.
  • Investment policy covering this specific investment.
  • Sufficient operational system, staff, administration, risk management, and relevant information.
  • Retained deficit of not more than half of the total equity.

In making the investment:

  • The insurer must provide supporting documents (e.g., policy for investment in other businesses, corporate approval, objective and business operation of the target entity, details and business plan of the target entity, cost-benefit analysis, feasibility study, and valuation report) to seek OIC approval.
  • The OIC will consider the application within 30 days from receiving the application and all supporting documents.
  • The OIC may impose conditions when granting approval, with which the insurer must comply.
  • The investment must not be for the purpose of circumventing the applicable investment requirements.
  • The insurer will need to explain the reasons and the necessity for making the additional investment.


Insurers that obtained OIC approval for investments in these equity instruments before 27 July 2023 can proceed with the investments under the approval granted. However, they should consider the applicable requirements under the new guidelines.

The new guidelines provide insurers with more clarity and certainty regarding criteria and the details to be presented to the OIC. Please contact us for more details of each investment criteria.

Contact Information
Sumet Orsirivikorn
Partner
Bangkok
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sumet.orsirivikorn@bakermckenzie.com
Amnart Pitakgorn
Partner
Bangkok
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amnart.pitakgorn@bakermckenzie.com
Jarae Sithiwong
Partner
Bangkok
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jarae.sithiwong@bakermckenzie.com
Sivapong Viriyabusaya
Partner
Bangkok
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sivapong.viriyabusaya@bakermckenzie.com
Ampika Kumar
Principal
Bangkok
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ampika.kumar@bakermckenzie.com

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