Asia Pacific Insurance
Newsletter | February 2017
Welcome to the 11th edition of the Asia Pacific Insurance Newsletter.
As part of our own expansion and growth, we're excited to launch the new face of the Asia Pacific Insurance Newsletter. We recently did a redesign and, along with it, improved our editorial content. We hope you pick up relevant and insightful industry intelligence from this newsletter to help you get ahead in your business. If you like this new design, please share your comments with us.
We are also excited to share two new guides with you this February:
Asia Pacific Guide for Investing in Insurtech Start-ups: This new guide offers advice on companies contemplating an acquisition, partnership or joint venture in the insurtech industry.
Asia Pacific Guide for Directors and Senior Managers of Insurance Companies: Get clarity on rules related to selecting, appointing and compensating senior offices in an insurance company.
We would also like to invite you to the Asia Pacific Insurance Forums in Hong Kong this March, and in Singapore this April, for a closed-door dialogue, where you will hear real-time updates that will be integral to your business. Read more about this insurance forum.
Finally, please feel free to share this newsletter with your colleagues who might benefit from it. To subscribe to the mailing list, please email Karla Maquiling.
Earlier editions of this newsletter and relevant insurance alerts can be accessed at the Asia Pacific Insurance website.
Co-chair Asia Pacific Insurance Group
>CAsoi-achPaaicr ific Insurance Group
In This Issue
INDONESIA > OJK issues new
regulations for insurance, reinsurance, insurance broker, insurance loss valuation companies JAPAN
> Insurance companies
utilizing artificial intelligence to improve services PHILIPPINES
> Insurance Commission
strengthens protection of insurance policyholders TAIWAN
> FSC publishes draft bill
of Act of FinTech Regulatory Sandbox THAILAND
> Expanded opportunities
for increasing foreign shareholders and directors in insurance companies VIETNAM
> New circular details
standardized guidelines for non-life insurers selling compulsory insurance products in infrastructure
> Draft new circular for
insurance businesses to improve corporate and financial governance for insurers and brokers finalized
Asia Pacific Insurance Forum Hong Kong and Singapore 2017
The inaugural Asia Pacific Insurance Forum will be held in Hong Kong and Singapore on 9 March and 20 April at our offices, respectively. We have a great program with a distinguished speaker line-up from various practices to address your insurance business challenges. The forum will discuss:
How insurtech influence and redirect investment and corporate strategy Legal and regulatory areas that may help protect and facilitate the growth of insurtech investments Data privacy and cross-border data transfer issues arising from insurtech utilization Latest competition and enforcement trends impacting our clients' business
Join us as we talk about issues that matter to you. Email Amy Viklund or Nur Fadilla to reserve your seat.
New: Asia Pacific Guide for Investing in Insurtech Start-ups X
Following the launch of the publication, The Insurtech Revolution: Regulatory Updates and Innovative Evolution, last November 2016, we are pleased to introduce the Asia Pacific Guide for Investing in Insurtech Startups.
This comprehensive handbook is useful for insurance companies contemplating an acquisition, partnership or joint venture in the insurtech space. It identifies and clarifies what makes or breaks a deal in relation to investment criteria, corporate approvals, corporate governance, connected transactions, remuneration structure, intellectual property and data privacy across 11 jurisdictions in Asia Pacific. Get your PDF copy.
> Updated: Asia Pacific Guide for Directors and Senior Managers of Insurance Companies 2017
As we continue to provide you updated information to help you make better business decisions, we are pleased to share the 2017 edition of Duties and Obligations of the Board and Senior Managers in Asia Pacific.
>XNow renamed to Asia Pacific Guide for Directors and
Senior Managers of Insurance Companies, the guide is a practical checklist for insurers for selecting, appointing and compensating directors or senior managers in locally incorporated entities, joint ventures or newly acquired companies. Download your PDF copy.
Regulatory Developments Across the Region
This round-up of updates from the insurance industry in Asia Pacific lets you stay current
Understand the new regulations for insurance, reinsurance, insurance broker and insurance loss valuation companies. Read more.
Draft bill of Act of Fintech Regulatory Sandbox encourages more companies to participate in innovation. Read more.
Find out how insurance companies in Japan are utilizing artificial intelligence to improve services. Read more.
Opportunities for foreign shareholders and directors in Thai insurance companies are increasing. Read more.
Insurance policyholders will enjoy strengthened protection with this new policy. Read more.
Non-life insurers selling compulsory insurance products in infrastructure must now comply with standard guidelines. Read more.
Draft new circular aims to improve corporate and financial governance for insurers and brokers. Read more.
Asia Pacific Key Insurance Contacts
We hope you find this newsletter useful. If you want to provide feedback or have questions, please contact your local partners listed below: >
China/Hong Kong Martin Tam Partner +852 2846 1629 firstname.lastname@example.org
Indonesia Mark Innis Foreign Legal Consultant +62 21 2980 8618 email@example.com
Singapore Stephanie Magnus Principal +65 6434 2672 firstname.lastname@example.org
Thailand Sorachon Boonsong Partner +66 2636 2000 ext. 4038 email@example.com
Japan Jiro Toyokawa Partner +81 3 6271 9457 firstname.lastname@example.org
Thailand Sivapong Viriyabusaya Partner +66 2636 2000 ext. 4041 email@example.com
Malaysia Brian Chia Partner +60 3 2298 7999 firstname.lastname@example.org
Philippines Felix Sy Partner +63 2 819 4963 email@example.com
Taiwan Hao-Ray Hu Partner +886 2 2715 7281 firstname.lastname@example.org
Vietnam Chi Lieu Dang Partner +84 4 3936 9341 email@example.com
Disclaimer: Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm.
Asia Pacific Insurance
Newsletter | February 2017
OJK issues new regulations for insurance, reinsurance, insurance broker, insurance loss valuation companies
On 23 December 2016 the Financial Services Authority (OJK) issued the following new regulations:
Regulation No. 67/POJK.05/2016 on Licensing and Institution of Insurance Companies, Syariah Insurance Companies, Reinsurance Companies and Syariah Reinsurance Companies (Regulation 67)
Regulation 68/POJK.05/2016 on Licensing and Institution of Insurance Broker, Reinsurance Broker and Insurance Loss Valuation Company
Regulation No. 69/POJK.05/2016 on Business Implementation for Insurance Companies, Syariah Insurance Companies, Reinsurance Companies and Syariah Reinsurance Companies (Regulation 69)
Regulation 70/POJK.05/2016 on Business Implementation for Insurance Broker, Reinsurance Broker and Insurance Loss Valuation Company (Regulation 70)
Regulation 71/POJK.05/2016 on Financial Soundness of Insurance and Reinsurance Companies (Regulation 71)
Regulation 72/POJK.05/2016 on Financial Soundness of Syariah Insurance and Reinsurance Companies (Regulation 72)
Regulation 73/POJK.05/2016 on Good Corporate Governance for Insurance Companies (Regulation 73)
Except for Regulation 71 and Regulation 72, the new regulations became effective on 28 December 2016. Regulation 71 and Regulation 72 will become effective on 1 July 2017.
Insurance, reinsurance and insurance supporting business companies will need to take the following immediate actions to comply with the regulations:
before 12 October 2017 insurance and reinsurance companies must set up a data center and a disaster recovery center in Indonesia
before 28 June 2017 insurance and reinsurance companies must appoint a controller and notify the OJK of the controller's identity
before 28 June 2017 insurance and reinsurance companies must submit to the OJK implementation plans to comply with the Indonesian shareholding requirement and single presence policy that has been approved by the shareholders
before 28 June 2017 insurance supporting business companies (that is, insurance brokers, reinsurance brokers and insurance loss valuation companies) need to submit
to the OJK implementation plans to comply with the Indonesian shareholding requirement that has been approved by the shareholders before 31 December 2017 insurance and reinsurance companies must comply with the requirements on the separation of the assets and liabilities of insured persons and policyholders before 31 December 2017 insurance and reinsurance companies (including syariah companies) must conduct a valuation of liabilities and produce an actuary report before 30 June 2017 a licensed insurance broker must have minimum equity of IDR1,300,000,000 before 30 June 2017 a licensed loss valuation must have minimum equity of IDR1,000,000,000 within 30 working days after the enactment of Regulation 70 insurance and reinsurance broker companies must comply with the requirements on the separation of premium accounts and operational accounts.
Regulation 67/Regulation 69
Please click for further details of Regulation 67 and Regulation 69 as set out in client alerts.
These regulations are in force.
Regulation 73: Good Corporate Governance
Regulation 73 replaces the prior 2014 regulation, and while many provisions are the same, there are higher standards and more restrictive measures including the following:
a requirement that shareholders' meetings must consider the interest of all stakeholders in resolving matters (including policy holders, insured parties, and any other insurance participants)
the manner in which the boards can be constituted (while many provisions are the same as the prior regulation, there are additional restrictions on nationality unless there is direct foreign investment in the insurance entity)
restrictions on the number of positions that a director and commissioner can hold and in what companies
information disclosure requirements (including to the OJK) a prohibition on shareholders intervening in the operations of insurance entities
This regulation is in force (although there are some transitional periods). Please follow this link for further details on material provisions.
Regulation 71/Regulation 72: Financial Soundness Principally these regulations contain complex provisions on the separate of funds, the manner in which insurance funds can be invested (including limits on the nature of investments, and limits with any fund manager, limits on investments with any one entity etc, and limits with affiliates of 25% of the total investments), solvency levels, investment adequacy, guarantee funds and mandatory reporting.
As noted above, these regulations will come into force on 1 July 2017.
Government regulation on foreign ownership We have heard that there is a draft government regulation on foreign ownership in the insurance sector being deliberated internally within government. There is a possibility that the regulation will be issued in a couple of months. Unfortunately the draft is very much under lock and key and is not available.
While still speculative, multiple sources and OJK statements indicate that, while the government may still permit 80% foreign ownership, there will be no grandfathering of ownership which has exceeded 80%, even if previously approved. Supposition is that the government considers that it will be difficult for existing companies that have exceeded 80% foreign ownership to find strategic Indonesian partner (who will invest less than 20% (very difficult to find)) and consequently there should be no grandfathering. However we need to note that the grandfathering issue is by no means settled one way or another.
The OJK has also stated that, assuming there is no grandfathering and if an insurance company cannot fulfill the 80:20 requirement by finding a strategic Indonesian partner within a certain period, the insurance company must conduct an initial public offering and a minimum of 50% of the issued shares must be owned by public. These statements re-enforce our supposition that the government is taking the view that there needs to be real strategic Indonesian partners and it seems the stick is the threat of mandatory listings with a large percentage held by the public. Our own view is that this is not workable as capital markets are not deep in Indonesia, if all insurance companies were to list the offerings could not be absorbed (nor perhaps underwritten) and if the 80:20 requirement is applied then 20% must on an IPO be taken up by Indonesians (which may not be practicable if there are many offerings).
Clients and industry associations need to present arguments to the OJK and the government that there needs to be grandfathering (and also retaining the right of dilution if an Indonesian shareholder cannot fund capital calls).
Proposed OJK sanctions regulation The OJK has circulated for comment (to a limited number of parties, including banks, law firms, Bank of Indonesia, business associations and the land office) a draft OJK regulation on the procedures for (i) imposing administration sanctions on the insurance industry and (ii) blocking an insurance company's assets.
In brief, the draft regulation specifies the sanctions to be imposed by the OJK, the OJK's mechanisms and authorities to impose and revoke the sanctions and an objection procedure. This draft regulation will be an implementing regulation on the sanction set out in the Insurance Law.
Development on fintech regulations Bank Indonesia launched a Fintech Office on 14 November 2016 and issued Regulation No. 18/40/PBI/2016 on Implementation of Payment Transactions Processing (Regulation No. 18).
Regulation No. 18 introduces new fintech services to Indonesia's payment-system industry, which previously consisted of e-money, card-based payment instruments and fund transfers.
There have been no developments on insurtech regulations (the OJK has not published any draft regulations on insurtech). However, the issuance of the fintech regulation indicates that the OJK is starting to regulate the fintech industry and the next step may be for the OJK to work on insurtech regulations.
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Asia Pacific Insurance
Newsletter | February 2017
Insurance companies utilizing artificial intelligence to improve services
According to a report in the Nikkei, Sompo Japan Nipponkoa Insurance Inc. (SJNK), a leading Japanese non-life insurance company, will start the testing of analyzing its customers' emotions by using artificial intelligence (AI). The testing will begin in fiscal year 2017, and will be conducted in order to improve the company's services to customers and prevent false insurance claims. AI has been utilized in some call centers, but this will be the first introduction of AI into the claims payment. Claim administrators' conversations will be automatically converted into text and recorded, and SJNK will analyze the accumulated voice records and texts using AI in order to discern the clients' emotions. SJNK intends to categorize the customers' tones of voice into some types such as satisfaction, complaint and anger, and establish a system to perform the insurance claims payment procedure smoothly, leveraging on the understanding of customer emotions as such. According to another report in the Nikkei, SJNK will also begin testing of answering inquiries from its sales offices about the details of insurance products and relevant processing by using AI in February 2017. The Jiji Press reported that Nippon Life Insurance Company (Nippon Life), a leading Japanese life insurance company, will start to utilize AI in the sales of insurance products in April 2017. Nippon Life will analyze vast amounts of data, such as customers' information, including family composition and behavioral patterns of high-performing sales staff. Nippon Life will advise its approximately 50,000 sales staff through mobile devices on various matters, such as the most appropriate timing for proposing insurance products, in order to strengthen its sales capabilities. According to various news reports, other major Japanese non-life and life insurance companies, such as Mitsui Sumitomo Insurance, Aioi Nissay Dowa Insurance, Tokio Marine & Nichido Fire Insurance and Japan Post Insurance have also introduced AI as a means of improving their services and operational efficiency. This new trend of insurance companies utilizing AI is expected to become the norm, and will undoubtedly change the manner in which these companies do businesses.
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Asia Pacific Insurance
Newsletter | February 2017
Insurance Commission strengthens protection of insurance policyholders
The Philippine Insurance Commission has issued Circular Letter No. 2016-20 on 26 May 2016 (Circular) covering the basic rights of an insured. The Circular applies to all life and nonlife insurance companies, mutual benefit associations, and insurance intermediaries that are authorized to engage in insurance business in the Philippines. The Circular is the first of many regulations that the Insurance Commission aims to promulgate in connection with protecting the rights of all policyholders. The Circular enumerates and seeks to reinforce the following "Bill of Rights":
Right to a financially sound and viable insurance company Right to access insurance companies' official financial information Right to be informed of the license status of insurance companies, intermediaries and
soliciting agents Right to be offered a duly approved insurance product Right to be informed of the benefits, exclusions and other provisions under the policy Right to receive the policy Right to confidentiality of information Right to efficient service from insurance companies, intermediaries and soliciting
agents Right to prompt and fair settlement of claims Right to seek assistance from the Insurance Commission
While the Amended Insurance Code already generally covers the foregoing, the release of the Circular is a move to strengthen the rights of financial consumers. In a press release on 25 July 2016, the Insurance Commission announced that one of its key initiatives is to advance the protection of the insuring public. Thus, the Insurance Commission will strictly implement the Circular and expects to release a series of implementing rules and regulations on the same. The release of the Circular addresses the evident need to protect the growing population of insurance policyholders, which had been brought about by a vigorous focus on empowering and driving growth in the Philippine insurance industry.
In the past years, the emphasis had been on strengthening the insurance industry, creating a conducive regulatory atmosphere for diversification and innovation of insurance products, opening new insurance markets, and discovering distribution methods in the marketing and sale of insurance products.
A similar consumer protection framework will be released by the Insurance Commissioner to capture pre-need and health maintenance organizations.
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Asia Pacific Insurance
Newsletter | February 2017
FSC publishes draft bill of Act of FinTech Regulatory Sandbox
On 12 January 2017, the Financial Supervisory Commission (the FSC) published the Draft Bill of the Act of Financial Technology Innovation Experiment (the Draft Fintech Act) to enable consultation and pre-legislative scrutiny. The Draft Fintech Act sets out the guidelines to launch and implement Regulatory Sandbox in Taiwan. Its purpose is to encourage financial institutions and fintech service providers to improve the efficiency and quality of financial services by developing innovative technologies. The Draft Fintech act offers a financial institution or a fintech service provider, which is approved by the FSC under the Draft Fintech Act (the Applicant), regulatory flexibilities and a safe environment to conduct innovative fintech experiment (the Innovative Experiment) within a maximum period of nine months. During such period, the Applicant will be exempted from certain administrative and criminal liabilities under current financial regulations. Below are the key points of the draft Fintech Act: 1. The criteria of Applicant Any financial service enterprise (including insurance company, insurance agency company, insurance broker company and insurance surveyor company) and any fintech service provider may apply for conducting the Innovative Experiment in accordance with the Act. 2. Application process The Applicant shall submit a detail plan of its Innovative Experiment, demonstrate the source of fund and the security measures to be applied to the Innovative Experiment, together with other documents as required under the draft Fintech Act or otherwise required by the FSC for commencing the Innovative Experiment. 3. Review process Upon receiving the Applicant's application materials, the FSC shall hold a review meeting to decide whether the approval shall be granted. The review meeting members shall consider the innovativeness and risk of the Innovative Experiment, proposed security measures, the possibility to increase the quality of finance service, and impact on the consumers. To ensure the consumer protection, the Applicant is required to reserve certain amount of funds for indemnity to the customers' losses caused by the Innovative Experimental. The decision shall be made within 60 days from receiving the application if no supplement is requested by the FSC.
4. Period of Innovative Experiment The period of the Innovative Experiment (the Experiment Period) shall be limited to six month and may be extended for three months upon the FSC's further approval.
5. Supervision and control over the Innovative Experiment The Applicant shall ensure the security of customers' information which is collected, used, processed for purpose of the Innovation Experiment. The FSC may set out controlling guidelines for the Innovative Experiment. If the Applicant fails to comply with such guidelines, the FSC may revoke its approval for the Innovative Experiment. After completion of the Innovative Experiment, the Applicant shall submit a report analyzing the compliance issues, consumer protection, security of information and other key points under the Innovation Experiment. Such report will provide the FSC with a basis to consider amendment to relevant financial regulations and to approve such innovated business if it is applied by the Applicant or other financial institutions or fintech service providers.
6. Protection on the Participants of the Innovative Experiment During the Experiment Period, the Applicant shall enter into a written agreement with its customer who participates in the Innovative Experiment (the Participant). Such agreement shall be fair to the Participant and shall comply with the Financial Consumer Protection Act. The Applicant shall notify the Participant of the scope and withdraw process of the Participants' rights and obligations under Innovative Experiment. The Applicant shall also obtain the Participant's consent to join the Innovative Experiment and the content of abovementioned notice.
6. Regulatory flexibility and exemption during the Experiment Period The draft Fintech Act offers a sandbox where certain financial regulations shall not be applicable to the Applicant during the Experiment Period. With respect to the insurance business, the draft Fintech Act exempts the Applicant from Article 167 and Article 167-1 of the Insurance Act, which prohibit anyone without a license to conduct insurance, insurance agent, insurance broker or insurance surveyor business in Taiwan. As a result, the Applicant may conduct the Innovative Experiment in relation to insurance product or service even if it does not hold a local insurance license.
The draft Fintech Act is still subject to public discussions and further amendments by the FSC. It provides an opportunity that promising innovations can be tested in the Taiwan market and have a chance for wider adoption and illustrates the Taiwan government's intention to create a competitive market by participating in the trend of innovation of financial technology.
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Asia Pacific Insurance
Newsletter | February 2017
Expanded opportunities for increasing foreign shareholders and directors in insurance companies
Background In Thailand, Section 10 of the Life Insurance Act, B.E. 2535 (1992), as amended, and Section 9 of the Non-Life Insurance Act, B.E. 2535 (1992), as amended (collectively the "Insurance Acts") permit life and non-life insurance companies in Thailand to request for a relaxation to increase its foreign shareholding ratio to more than 49 percent and to increase its foreign directorship proportion to more than half; provided that the insurance companies have been granted specific permissions from the Minister of Finance (the MOF), upon the recommendation of the Office of Insurance Commission (the OIC).
Under the Insurance Acts, the MOF may grant such permission only under the following three circumstances:
1. it would improve the insurance company's standing or operations, which exists in such a state that may cause damage to the insured or the public
2. it would enhance the stability of the insurance company 3. it would enhance the stability of the insurance industry as a whole in Thailand
The MOF recently announced the Notification re: criteria, procedures, and conditions for nonThai persons to hold more than 49 percent of the total voting shares sold, and for non-Thai directors to comprise more than half of the total number of directors, which provides the criteria for seeking the MOF's permission under the conditions in (2) and (3) above (the MOF Notification).
The MOF Notification becomes effective from the date of announcement in the Royal Gazette, which is 18 January 2017. Key aspects of the notification Permission to increase the foreign shareholding ratio and directorship proportion Under the MOF Notification, the MOF will grant permission to allow non-Thai shareholders to hold more than 49 percent (and up to 100 percent) of the total voting shares sold, and non-Thai directors to comprise the majority of all directors of the company. Whereas the MOF's permission granted for the purpose of rectifying the insurance company's financial distress is granted up to 10 years, there is no specific time period imposed under the MOF Notification. However, the MOF (with the OIC's recommendation), may impose a time period on the permission.
Qualifications of the insurance company In order to seek the MOF's permission, the insurance company must meet the following qualifications:
have a capital adequacy ratio (CAR) at the level required by the respective regulation on the calculation of the capital fund
have a business plan for enhancing the stability of the insurance company and enhancing the overall stability of the insurance industry.
Qualifications and capabilities of the non-Thai shareholders The non-Thai shareholders seeking to obtain the MOF's permission must have the following qualifications and capabilities:
at least ten years' expertise and experience related to or supporting insurance business financial and operational stability, whereby the non-Thai shareholder or its parent
company must receive at least an A rating from a recognized international credit rating agency, as well as having the business operation network at the international level policy for the business operation and a concrete plan for the transfer of technology and expertise in order to develop management systems and to enhance the business potential and competitive capabilities the capability to provide financial support in order to allow the company to implement the business plan
Procedure in applying for the MOF's permission The insurance company must submit the application for the MOF's permission, together with comprehensive supporting documents, through the OIC.
Thereafter, the OIC will pass the respective application to the MOF within 90 days from the date it receives the completed documents. Then, the MOF, on the recommendation of the OIC, will consider and notify the insurance company of its decision within 90 days from the date the MOF has received the completed application with all required documents.
Conditions for MOF's permission
Once the MOF grants its permission, the insurance company and/or the non-Thai shareholder will be subject to the following requirements/conditions:
The insurance company must have total capital available (TCA) of not less than Baht 4 billion (approximately US$113 million) in case of life insurance company and Baht 1 Billion (approximately US$28 million) in case of non-life insurance company, at all times during its business operation.
The change of the shareholding ratio held by a non-Thai shareholder who has been granted permission from the MOF must be subject to the following conditions: (i) in case of a change in the shareholding ratio of non-Thai shareholders of 5% or more, the insurance company must report to the registrar (OIC) within 30 days from the date of change; and (ii) in case of a change in the shareholding ratio of a non-Thai shareholder (who has been granted the permission from the MOF) results in other non-Thai shareholders (who have not been granted the permission from the MOF) holding 20% or more of the total shares, the insurance company must request permission from the MOF.
A non-Thai shareholder (who has been granted the permission from the MOF) and entities under the same group of such non-Thai shareholder will not be permitted to operate an insurance business in Thailand, either through a branch of a foreign insurer or by holding shares in other licensed insurance companies in Thailand. This means that upon the MOF's permission being granted, the non-Thai shareholder will be subject to a single presence policy. Please note, however, that such a person would still be permitted to invest in a mutual fund or other forms of business similar to a mutual fund; provided that such investments are not for the purpose of circumventing the single presence rule.
The insurance company will be able to distribute dividends only when the insurance company has fully implemented the business plan submitted to the MOF, in particular, plans related to the transfer of technology and expertise, human resources and capital fund management.
Deemed MOF's permission for EBT or amalgamation transaction If an insurance company that has been granted a permission from the MOF pursuant to the MOF Notification undergoes an entire business transfer (EBT) or an amalgamation, and the contemplated transaction results in the target insurance company having a foreign shareholding ratio of more than 49% or a foreign directorship ratio of more than half, it will be deemed that such target insurance company has been granted the permission from the MOF, for a temporary period, for the purpose of the EBT or amalgamation.
Conclusion This MOF Notification provides further clarification and guidelines for the application to increase the foreign shareholding and directorship proportions in insurance companies. Foreign investors seeking to invest in insurance companies in Thailand may now take advantage of these relaxations on foreign shareholding restrictions.
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Asia Pacific Insurance
Newsletter | February 2017
Vietnam's new circular provides detailed standardized guidelines for non-life insurers to sell compulsory insurance products for infrastructure construction projects
Recent developments Effective as of 1 March 2017, Circular No. 329 provides for detailed guidelines on compulsory insurance products in construction and investment projects, including: insurance for construction work during the construction period, insurance for investment and construction consultancy professional liability, and insurance for workers doing building work on construction sites. It also provides for the implementation of insurance for civil liability for third parties. Specifically, Circular No. 329 outlines regulations on the terms and conditions, premiums, financial regimes and reporting regimes for those compulsory products, as well as providing for standardized templates of policy documents.
Specific implications for general/non-life insurers While Circular No. 329 imposes an obligation on local non-life insurers to sell compulsory insurance products, investors and contractors can select any qualified non-life insurers to purchase the products from. Local non-life insurers must meet the conditions set out in Decree No. 119 and the Law on Insurance Business for providing compulsory construction insurance products. Also, in order for an offshore re-insurer to receive compulsory construction insurance ceded from a local insurer in Vietnam, that offshore re-insurer must have a minimum rating of "BBB" by Standard & Poor's, or "B++" by A.M. Best, or an equivalent rating from another experienced and accredited rating institution in the latest fiscal year of re-insurance.
In terms of financial regimes, Circular No. 329 requires that local non-life insurers separately account for insurance premiums revenue, commissions, indemnity, and other expenses related to these compulsory insurance products.
In addition, local non-life insurers must prepare and submit reports on these operations on a quarterly and annual basis.
Although Circular No. 329 clarifies that it does not have any retroactive effect on the existing insurance policies that have been executed before 1 March 2017, since Circular No. 329 introduces various new guidelines and standardized requirements, local non-life insurers may need to review and update their existing templates of related policy documents to comply with Circular No. 329.
Vietnam finalizes draft new circular implementing new decree on insurance business to improve corporate and financial governance for insurers and brokers
The Ministry of Finance (the MOF) is finalizing a draft of a new circular (the Draft Circular) guiding last year's Decree No. 73 on insurance business. The Draft Circular consolidates the provisions under the three previous implementing circulars, namely: Circular No. 124/2012/TTBTC, Circular No. 125/2012/TT-BTC and Circular No. 194/2014/TT-BTC (the Existing Circulars), covering various legal aspects for local insurers, insurance brokers and agents. However, it also introduces a number of new and stricter requirements and guidelines compared to the Existing Circulars.
Insurance agents' commissions and the reduction of insurance premiums Insurers must send a written notice of mechanism of reduction of premiums to the MOF in cases they:
sell life or health insurance products directly to customers and does not have to pay any commission to its agents or brokers
collect premiums automatically via banks or other methods that reduce the cost of collecting premiums
Periodical reporting requirements related to insurance products The Draft Circular proposes to increase the reporting frequency for life insurers from quarterly to monthly on their reports on the list of new insurance products. In addition, the life insurers must, on an annual basis, notify their clients of, among other things, the status of their life insurance policies.
Insurance brokerage Insurance brokers must confirm in writing with their customers regarding work items completed at the end of their insurance brokerage service provided to their customers.
In terms of the maximum rate of brokerage commission of each insurance operation/class under each insurance policy contract, the Draft Circular leaves it unchanged at 15%. However, this rate is calculated based on the amount of premiums as specified in the insurance policy (rather than on the amount of premiums as actually collected by insurers, which is the case under the Existing Circulars).
Higher duties for appointed actuaries In relation to life and health insurers, the Draft Circular adds a new duty for their appointed actuaries. Among other things, they must assess investment activities on a quarterly and annual basis, ensuring a correlation between the invested assets and the liabilities the insurer is committed to pay under the insurance policies.
For non-life insurers and reinsurers' appointed actuaries, the Draft Circular proposes to increase the reporting frequency from quarterly to monthly for their appointed actuaries to assess the solvency of their non-life insurers or reinsurers and certify their solvency reports for submission to the MOF. In addition, non-life insurers and reinsurers' appointed actuaries must prepare and submit annual reports on matters related to their duties to the MOF (in addition to the life and health insurers' appointed actuaries, under the current regulations).
Other regulations The Draft Circular also provides for new guidelines addressing issues relating to financial governance, insurance operation reserves, solvency margins, principles for determination of revenues and expenses, separation between owners' funds and policyholders' funds, financial and statistical reporting regimes, and the establishment of the solvency supervision board.
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