In more detail
The MOF is empowered to, with recommendation from the Insurance Commission, allow insurance companies to increase their foreign shareholding ratio beyond 49% and to have foreign nationals comprising more than half of their directors. One of the scenarios under which the MOF may grant this permission is where doing so will improve the insurance company's standing or operations, which otherwise exist in a condition that may cause damage to the insured or the public ("Financial Distress Cases").
In 2016, the MOF established criteria for non-life insurance companies to seek this approval in distressed cases. However, the criteria for life insurers to seek this permission in financial distress cases have not yet been announced. As a result, foreign investors are still effectively prohibited from increasing their stake in life insurance companies to more than 49% of the total shares in the company in distressed cases.
A draft notification outlining the criteria for seeking permission to relax foreign shareholding in financial distress cases has been published on the OIC's website, and it is now open for public review.
Overview of the permission
| Who can seek this permission? |
Licensed life insurers in Thailand |
| When can this permission be sought? |
The life insurer is under "distress" – either operating in a way that could harm policyholders or the public, or its capital adequacy ratio (CAR) has been affected by a severe disaster. |
| Relaxation which may be granted |
- Foreign shareholding relaxation to have foreign shareholders hold up to 75% of the total issued voting shares in the life insurer and this 75% cap cannot be increased.
- Foreign directors can comprise up to three-quarters of the directors on the board.
|
| Time limit |
The relaxation is valid for 10 years from when it is granted. |
| What happens when the relaxation expires? |
- The insurer must reduce the foreign shareholding ratio to not more than 49% of the total voting shares sold.
- The number of non-Thai directors must be less than half of the total directors within one year from the expiry of the 10-year period.
|
| Is an extension possible? |
The life insurer can seek an extension before the 10-year period expires. The MOF, upon the Insurance Commission's recommendation, has the discretion to grant one extension (of not more than five years). |
| Is there any condition to the permission? |
Conditions attached to the permission include: (1) minimum capital increase requirement; (2) foreign shareholder share transfer restriction; and (3) dividend declaration requirement. |
Key requirements
Requirements presented in the draft notification are mostly similar to the criteria for non-life insurers. The key requirements are set out below.
| Requirement |
Detail |
| Qualifications of the life insurer |
| Potential to harm policyholders or the public |
The standing and operations of the company could harm policyholders or the public in any of the following ways:
- The company receives an order from the OIC to rectify its condition or operations, to adjust its registered capital, or receives an order to be under the MOF's control.
- A severe disaster occurs, significantly affecting the insurance business, and obliging the company to pay substantial compensation to policyholders or the public, thereby affecting the company's CAR.
|
| Capital injection from current shareholders |
The existing shareholders of the company are unable to support the increase of the company's capital. |
| No willing Thai persons |
The company cannot find Thai individuals or juristic persons willing to support the funding for capital increase in order to enable the company to maintain long-term operational stability and sustainability. |
| Qualifications of the proposed foreign shareholder |
| Experience |
The proposed foreign shareholder must be an insurance company or be within the group of insurance business or financial business relating to insurance, and must have at least ten years of expertise and experience in the insurance business. |
| Credit rating |
The proposed foreign shareholder or its parent company must receive at least an "A" rating from a recognized international credit rating agency. |
| Business plan |
The proposed foreign shareholder must have a business plan, and a plan addressing rectification of the company's financial condition and business operations, technology transfer, expertise sharing, management improvement, and overall competitiveness. |
| Funding |
| Minimum mandatory capital increase |
The proposed foreign shareholder must be able to contribute funds by way of share subscription in the company's capital increase, of at least THB 2,000 million (approximately USD 55 million) to ensure the that company can maintain a CAR of 250%. |
Conditions to the MOF permission
The MOF will impose the following conditions with its permission.
| Condition |
Detail |
| Capital increase |
The company must raise its registered capital by at least THB 2,000 million by way of capital increase. All these new shares must be fully paid-up. |
| Share transfer restrictions |
The foreign shareholder is prohibited from selling or transferring its shares in the insurance company to other non-Thai persons. |
| Dividend declaration requirement |
The company can only distribute dividends if it has been operating at a profit for at least two consecutive years (inclusive of the year when dividend is declared). |
Review timeline
The MOF, with recommendation from the Insurance Commission, will evaluate the application and notify the company of its decision within 90 days from the date the OIC receives the complete application and supporting documents.
Public hearing
The OIC is currently conducting the public hearing on the draft MOF notification until the end of this month. If you have any questions or comments, please feel free to reach out to our team.
