On 28 December 2015, the Office of Insurance Commission (OIC), Thailand's key regulatory body for insurance, announced the Notification re: Criteria, Procedures, and Conditions for Non-Thai Persons to Hold up to 49 Percent of Total Voting Shares Sold, and for Non-Thai Directors to Comprise up to Half of the Total Directors of an Insurance Company, B.E. 2558 for Both Life and Non-life Insurance Sectors (the Notifications). This Notification provides much-needed clarification to the law by prescribing the qualifications and procedures for the application to increase the foreign shareholding and directorship proportions. Insurance companies may now realize the relaxations on foreign shareholding restrictions that have been granted under the Insurance Acts.
Under section 10 of the Life Insurance Act and section 9 of the Non-Life Insurance Act, B.E. 2535 (1992) (the Insurance Acts), insurance companies may increase the ratio of non-Thai shareholders up to 49 percent, and the number of non-Thai directors up to not more than half of all directors, with approval from the Office of the Insurance Commission (the OIC). The applications for approval are subject to criteria to be prescribed by the OIC.
The Notifications will become effective upon the publication in the Government Gazette and are currently pending publication. The key aspects of the Notifications are:
Definition of non-Thai person
The existing Insurance Acts do not provide a clear definition of a "non-Thai person." However, the Notifications provide that a non-Thai person be interpreted in accordance with the law on foreign business, namely the Foreign Business Act, B.E. 2542 (1999). Accordingly, a "non-Thai person" means:
- a natural person not of Thai nationality;
- a juristic person not registered in Thailand;
- a juristic person registered in Thailand with half or more of its share capital held by persons in (1) and (2);
- a limited partnership or registered ordinary partnership having a person under (1) as the managing partner or manager; or
- a juristic person registered in Thailand having half or more of its capital shares held by persons under (1), (2), or (3).
Purpose for the increase of foreign shareholding
Insurance companies must apply for OIC approval to increase the foreign shareholding or directorship proportion for the following purposes:
- the company must have a capital adequacy ratio (CAR) of less than, or likely to be less than, the ratio prescribed by the OIC, which is currently 140 percent; or
- the company is planning to improve its management in order to enhance its capability in operating business and competitiveness.
Qualifications for non-Thai shareholders
A non-Thai person seeking the approval to hold shares in an insurance company must have the following characteristics:
- be an insurance company, be a company in the insurance sector, or a company conducting a financial business that is related to the insurance business;
- have financial and operational stability;
- have expertise and experience in the insurance business;
- have credibility and an international network of business operations; and
- have a business plan for the transfer of technology and expertise to support the business potential of the company.
Change of non-Thai shareholders who holds or will hold 10 percent shares after the approval of 49 percent
The OIC approval will be granted to the insurance company and the specific non-Thai shareholder. Therefore, upon the OIC granting its approval, the insurance company will be ring-fenced, and any change in respect of foreign shareholders who hold or will hold more than 10 percent of voting shares will be regulated. To elaborate, if a non-Thai person that has not been specifically approved by the OIC will subsequently hold more than 10 percent of the company, the non-Thai shareholder must meet the qualifications for non-Thai shareholders above, and the insurance company must obtain prior approval from the OIC.
Please note, however, that if (i) the insurance company has been granted the approval before the Notification becomes effective, and (ii) there is non-Thai shareholder, who is not a granted non-Thai shareholder under the approval, currently holding more than 10 percent of the shares in such insurance company, the said non-Thai shareholder may continue holding shares on an as-is basis without seeking the OIC approval. Nevertheless, if the said non-Thai shareholder wishes to increase its shareholding, the OIC approval is required. Accordingly, the non-Thai shareholders must meet the qualifications for non-Thai shareholders above, and the insurance company must obtain prior approval from the OIC.
On a final note, the approval for change of foreign shareholder is not applicable to insurance companies that have the normal foreign shareholding of not more than 25 percent and Thai shareholding of not less than 75 percent. Under the Notifications, any change of share ownership within the 25 percent (or less) foreign shareholding would not be subject to the requirements to seek OIC approval for a share transfer.