In response to the 2011 flood crisis, which caused massive damage on a scale not accounted for in normal insurance underwriting, the Office of Insurance Commission (OIC) has issued two notifications to help non-life insurance companies maintain their minimum capital charge requirements under the new risk-based capital requirement (RBC).
1. Notification on the Calculation of Capital Charges
During the period 31 December 2011 to 31 March 2013, the following exemptions on calculating certain types of capital holding will be granted to non-life insurance companies, which pay compensation to their creditors under insurance contracts, for losses or damage to insured properties sustained from flooding that occurred between 1 July 2011 and 31 December 2011 (the "Flood Compensation").
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Flood-affected non-life insurance companies must use the compensation paid by their reinsurers (cash call) to immediately make payment to their creditors under insurance contracts. However, pending the settlement of debts under insurance contracts, the OIC will allow non-life insurance companies to invest reinsurer compensation in select, low-risk assets, namely government bonds, bonds of the Bank of Thailand, state-enterprise bonds guaranteed by the Ministry of Finance, short-term bills of exchange issued by banks, or bank deposits.
2. Notification allowing certain loans to be counted as Tier Two Capital
To assist non-life insurance companies in maintaining their capital charges as prescribed by law, the OIC will allow loans that are acquired by flood-affected, non-life insurance companies before June 2012, and having the below characteristics, to be counted as tier-2 capital:
- loans with a minimum repayment term of ten (10) years and a prohibition on prepayment unless the company can increase its capital in accordance with rules and conditions prescribed by the OIC;
- loans containing a stipulation that, in the event the company is dissolved, the right of loan creditors to debt repayment will be the last order (i.e. after the company pays its debts to all other creditors); and
- loans with a loan agreement having terms and conditions that are approved by the OIC.
The amount of tier-2 capital may exceed the amount of tier-1 capital, provided that such excess amount be derived only from point (1), above.