Thailand: Clarity on Obtaining Permission for Majority Foreign Ownership in Insurers
There has been much talk about an insurance notification of the Thai Ministry of Finance, effective 18 January 2017. We would like to clarify at the outset that this notification does not change foreign shareholding limits within Thai insurers.
There has been much talk about an insurance notification of the Thai Ministry of Finance, effective 18 January 2017. We would like to clarify at the outset that this notification does not change foreign shareholding limits within Thai insurers. Instead, it clarifies how permission for majority foreign shareholding may be sought and granted.
There is a general limit of 25% on foreign shareholdings in Thai insurers. Up to 49% may be permitted with approval of the regulator.
Under the Insurance Acts, the Finance Minister, with the recommendation of the regulator, can permit foreign shareholdings in excess of 49%, on the following grounds:
- Standing or operations of the insurer may cause damage to the insured or the public;
- Strengthening an insurer’s situation; or
- Strengthening the insurance industry in Thailand.
This provision has been in place for approximately two years, and broadly similar provisions existed for many years before that.
The notification contemplates that the applicant for permission will be the Thai insurer. To be eligible, it must:
- Have a capital adequacy ratio not less than the minimum set by the regulator;
- Have a business plan for at least three years to strengthen its business and/or the insurance sector as a whole. This plan can propose development of new products and distribution channels.
The proposed majority foreign shareholder must:
- Be an insurance company, or a company that conducts business that supports or is related to insurance;
- Have at least 10 years’ experience and expertise in insurance, or supporting or relating to insurance;
- Be financially stable and have (directly or through its parent company) a rating no lower than ‘A’ from a credible international credit rating agency;
- Have a business plan and a technology transfer policy in order to develop an operational system to promote the efficiency and competitiveness of the applicant insurer;
- Be capable of financially supporting the Thai insurer.
Upon receipt of the application and supporting documents, there is effectively a 180 day timeframe for the Finance Minister to make a decision.
If granting permission, (a) the Finance Minister may impose any rules and time conditions as he sees fit, and (b):
- The applicant’s total capital available (TCA) is then required to be:
(i) Not less than 1 billion Thai Baht (approx. US$28.4 million) for a non-life insurer;
(ii) Not less than 4 billion Thai Baht (US$113.6 million) for a life insurer.
- Any change in the foreign shareholding by 5% or more must be reported to the regulator.
- The Finance Minister’s approval is required for any transfer of shares by the majority foreign shareholder to another foreign party whose shareholding will then amount to 20% or more as a result.
Dividends can only be paid if the insurer has compiled with its business plan, and has followed any other conditions imposed by the Finance Minister.
The majority foreign shareholder and its related persons may not engage in any other insurance business in Thailand, either through a branch office or holding shares in other Thai insurers, unless approved by the Finance Minister. This restriction does not apply to investment through a mutual fund or similar investment where there is no intention to circumvent the restriction.
While this notification is a positive step towards liberalisation, it remains to be seen whether it is a significant one. It relates to a discretionary power with various conditions attached. It is not the case that simply meeting the eligibility criteria will guarantee permission being granted.
Historically, it has not been easy to obtain permission for majority foreign ownership in a Thai insurer. Time will tell whether this notification heralds a change in philosophy, which draws foreign ownership levels in the Thai insurance sector to something comparable to those seen in many other states in the ASEAN region.
With that said, it is certainly positive to see:
(a) apparent encouragement to propose new products. It has not always been easy in the past to obtain regulatory approval to introduce innovative products to the Thai market;
(b) the limited timeframe for decisions on permission to be taken. This is a move away from what could previously be a prolonged process, and is encouragement for current or potential foreign investors in a Thai insurer to seek the permission.
Download full version of the article on Thailand Update - January 2017