Kennedys Singapore & Kennedys Hong Kong LEGAL GUIDE TO CORPORATE INSURANCE FOR SOUTH-EAST ASIA February 2016 Disclaimer The information and opinions contained in this brochure are for general information purposes, are not intended to constitute legal or other professional advice, and should not be relied on or treated as a substitute for specific advice relevant to particular circumstances. Current as at 1 March, 2016. Note that laws and regulations are subject to frequent changes. Kennedys Legal Solution is authorised to practice Singapore law. Kennedys in Hong Kong is authorised to practice Hong Kong law. This publication is for information purposes only and should not be relied upon as providing legal advice. All rights reserved. Kennedys Singapore & Kennedys Hong Kong February 2016 Page 1 of 63 INTRODUCTION We are delighted to introduce our Legal Guide to Corporate Insurance for South & SouthEast Asia. What follows is a profile for 11 Asian countries, focusing on 4 key areas for investors looking to access those markets and for those already there: foreign ownership & management restrictions; minimum capital requirements; key compliance issues; and notable costs. The countries covered incorporate members of ASEAN, whose vision of regional economic integration with free movement of goods, services, investment and labour harbours exciting new opportunities, and jurisdictions of south Asia, an area experiencing rapid urbanisation and a growing middle class, prompting insurance demand, coupled with increased foreign investment opportunities for insurers and intermediaries. We sincerely hope you find this guide a useful introduction to the involved legal and regulatory issues. If you have any questions or require related advice, please contact: Acknowledgements In producing this brochure, we acknowledge and are thankful for the contributions of our associated offices and other law firms. The names of those offices & firms are noted at the beginning of sections they have contributed to. Peter Cashin Partner, Hong Kong T: +852 2848 6306 E: firstname.lastname@example.org Jonathan Goacher Counsel T: +65 6671 7466 E: email@example.com Kennedys Singapore & Kennedys Hong Kong February 2016 Page 2 of 63 ABOUT KENNEDYS’ CORPORATE INSURANCE PRACTICE Insurance is a specialised business. Product, distribution, capital and investment issues are combined with unique vertical supply and horizontal business implementation issues. With an understanding of these dynamics, our corporate insurance practice provides legal advice on: Mergers and acquisitions Divestments Investments Joint ventures Strategic alliances Business establishment Transfers of business Run-off arrangements Regulatory insurer and intermediary licensing audits investigations compliance enquiries solvency and derivate matters training Reinsurance issues Competition Technology and outsourcing Hedging and financial product development Important corporate insurance legal services considerations Whilst there may be many solutions to any one problem, your particular corporate objectives and the regulatory landscape will be the basis of an effective solution. We understand that: Regulations are developing quickly. The insurance industry is, by its very nature, international. Effective delivery of legal services requires a sound understanding of: the business the client's corporate objectives how regulations are developing. Global and regional regulatory trends We follow closely global and regional regulatory trends, as regulations are increasingly cross border, supervised by lead regulators and regulatory colleges. The industry is also subject to closer scrutiny by: Financial Stability Board (FSB) Kennedys Singapore & Kennedys Hong Kong February 2016 Page 3 of 63 International Association of Insurance Supervisors (IAIS) International Monetary Fund (IMF) World Bank Local insurance, securities, pension and banking regulators. Our clients We work with a range of clients in international markets, including: Life insurers General insurers Professional reinsurers Insurance brokers Asset managers Private equity groups. Geographical coverage We have the ability and capacity to assist you wherever you do business in Asia. In particular, our Singapore office is licensed to advise on local law and through our associations and with other offices & firms, we offer seamless corporate insurance legal services across the ASEAN region and in south Asia. Kennedys Singapore & Kennedys Hong Kong February 2016 Page 4 of 63 Table of Contents CAMBODIA ............................................................................................... 5 INDIA ....................................................................................................10 INDONESIA ..............................................................................................15 LAOS.....................................................................................................22 MALAYSIA ...............................................................................................25 MYANMAR ...............................................................................................30 PAKISTAN ...............................................................................................34 PHILIPPINES.............................................................................................39 SINGAPORE .............................................................................................45 THAILAND...............................................................................................52 VIETNAM ................................................................................................57 Kennedys Singapore & Kennedys Hong Kong February 2016 Page 5 of 63 CAMBODIA Contributed by: SokSiphana & Associates, a member of ZICOlaw Foreign ownership/management limitations: There are 3 general categories of license in the Cambodian insurance sector, namely: (i) insurer; (ii) broker; and (iii) agent. An insurer may apply to be licensed as life, general or micro-insurer. Generally, there is no restriction on foreign ownership or management in all licensees imposed by the Ministry of Economy and Finance (the “MEF”), the regulator of the Cambodian insurance industry, provided always that the licensee must adhere to such administrative requirements as may be imposed by any commercial bank in the Kingdom of Cambodia for operation of bank accounts and the registration requirements with the Ministry of Commerce for incorporation of a company. Any foreign investor intending to operate insurance business in the Kingdom of Cambodia must first apply to the MEF to obtain an Approval in Principal. Upon fulfilment of the conditions under the Approval in Principal, the investor shall then incorporate a local company in the Kingdom of Cambodia to undertake the insurance business. The insurance license will then be issued in favour of the local company. Capital requirements: For general and life insurers: - The minimum registered capital is equivalent to approximately US$ 7,000,000. - An amount equivalent to 10% of the registered capital must be deposited in the account of the MEF at the National Bank of Cambodia. - An amount equivalent to 50% of the registered capital must be keep and preserved as a solvency margin at any commercial bank in the Kingdom of Cambodia. For micro-insurers: - The minimum registered capital is equivalent to approximately US$ 150,000. - An amount equivalent to approximately US$ 50,000 must be kept and preserved as a CAMBODIA Kennedys Singapore & Kennedys Hong Kong February 2016 Page 6 of 63 solvency margin at any commercial bank in the Kingdom of Cambodia. - A security fund of at least US$ 50,000 must be deposited and maintained at the National Bank of Cambodia. For brokers: - The minimum capital for investment is equivalent to approximately US$ 50,000. - A security fund of at least US$ 50,000 must be deposited and maintained at the National Bank of Cambodia. For agents: - The minimum capital for investment is equivalent to approximately US$ 5,000. - A security fund of at least US$ 10,000 must be deposited and maintained at the National Bank of Cambodia. Some key compliance issues: For all insurers: - An insurer in the Kingdom of Cambodia must be incorporated as a Public Limited Liability Company as stipulated in the Law on Commercial Enterprise. - Each insurer must have at least three shareholders. - Presently, licenses to carry out life insurance business are being issued very restrictively. It is often considerably more effective to proceed by an acquisition of the shares of an existing, licensed life insurer. An applicant for a general or micro-insurance licence can be more optimistic of an approval by the MEF. - A licensing application to the MEF requires a feasibility study and a 3 year business plan. The feasibility study must be in considerable detail, to include descriptions of the prospective insurance products to be offered in the Kingdom of Cambodia, samples of the insurance policies, the profit margin, market Kennedys Singapore & Kennedys Hong Kong February 2016 Page 7 of 63 segments, target clients, details of training programs, the break-even period, qualifications of risk evaluators and management teams, etc. - In the period of three months after the end of each financial year, or any additional year permitted by the MEF, the insurer must provide to the MEF its annual financial report, audited by the auditor. - The insurer must publically disseminate its annual financial report in summarized form, as required by the MEF. - The MEF has the power to demand from the insurer disclosure of documents and financial reports. - All director appointments are subject to the written consent of the MEF. The MEF reserves absolute discretion to evaluate the candidates under its own criteria. - The chairman of the board of director is to be a non-executive position and there must be at least two independent non-executive directors on the board. An independent director should not have been employed in any executive position in the insurer or its related companies for at least 2 years prior to his appointment date. - Policy wordings, premium rates and the mechanism for the payment of claims must be approved by the MEF. - There is relatively little regulation of reinsurance and it is possible for liability for locally-insured risks to be substantially transferred overseas. - An insurer can only invest in financial assets and real estate as allowed by the MEF. Kennedys Singapore & Kennedys Hong Kong February 2016 Page 8 of 63 - An insurer cannot provide any loan or guarantee or other credit facility against its own shares unless specifically approved by the MEF. The insurer may provide short term loans to its insured persons, up to the amount the insured has the contractual right to withdraw from the insurer at the time of the loan. For brokers: - All insurance brokers (individuals or legal entities) must obtain a license from the MEF to carry out insurance brokerage businesses in the Kingdom of Cambodia. - In the period of three months after the end of each financial year, or any additional year permitted by the MEF, a broker shall provide to the MEF its annual financial report, audited by the auditor. For agents: - All insurance agents (individuals or legal entities) must be licensed with the MEF. - An insurance agent must operate an office in the Kingdom of Cambodia as per the address stipulated in the license. - Accounting rules must be developed, with the approval from the MEF, to manage and record income and expenditure. - In the period of three months after the end of each financial year, or any additional year permitted by the MEF, an agent must provide to the MEF its annual financial report, audited by the auditor. - An agent must provide the MEF with monthly reports based on the business statistics of the previous month. Kennedys Singapore & Kennedys Hong Kong February 2016 Page 9 of 63 Notable costs: For general or life insurers: - The license fee is equivalent to approximately US$ 12,500. - The license is usually valid for 3 years and may be extended for another 3 years. The MEF has the discretion to determine the renewal fee from time to time by issuing an administrative directive. For micro-insurers: - The license fee is equivalent to approximately US$ 1,250. - The license is usually valid for 1 year and may be extended. The MEF has the discretion to determine the renewal fee from time to time by issuing an administrative directive. For brokers: - The license fee is equivalent to approximately US$ 1,000. - The license is usually valid for 1 year and may be extended. The MEF has the discretion to determine the renewal fee from time to time by issuing an administrative directive. For agents: - The license fee is equivalent to approximately US$ 750. - The license is usually valid for 3 years and may be extended. The MEF has the discretion to determine the renewal fee from time to time by issuing an administrative directive. Kennedys Singapore & Kennedys Hong Kong February 2016 Page 10 of 63 INDIA Contributed by: Tuli & Co Foreign ownership/management limitations: The foreign investment limit in “Indian Insurance Companies” was recently increased to 49% of the paid up equity capital of the company pursuant to the Insurance Laws (Amendment) Act 2015 (“Amendment Act”). As a first step to implement these changes, the Ministry of Finance notified the Indian Insurance Companies (Foreign Investment) Rules 2015 (“Rules”) on 19 February 2015. The Rules provide that approval from the Foreign Investment Promotion Board, Department of Economic Affairs, Ministry of Finance will need to be obtained for any foreign investment beyond 26% up to the new limit of 49%. In addition, the Rules have clarified that the increased FDI limit of 49% will also apply to insurance intermediaries (which includes insurance brokers), in accordance with the terms in the Rules. As per the provisions of the Amendment Act and the Rules, all insurers and insurance brokers should be Indian-owned and controlled at all times. The term ‘control’ has been defined as the right to appoint a majority of the directors or to control the management or policy decisions, including through shareholding or management rights or shareholders' agreements or voting agreements. The Rules have defined ‘Indian control’ to mean control by resident Indian citizens or Indian companies, which are owned and controlled by resident Indian citizens. The term ‘Indian ownership’ has been defined to mean more than 50% of the equity CAMBODIA INDIA Kennedys Singapore & Kennedys Hong Kong February 2016 Page 11 of 63 capital beneficially owned by resident Indian citizens or Indian companies, which are owned and controlled by resident Indian citizens. Therefore, any insurer or insurance broker with share capital held by foreign shareholders will need to be Indian-owned and Indian controlled at all times. The manner in which the changes introduced by the Amendment Act and the Rules will be implemented and interpreted remains to be seen. One of the important changes which is still awaited is amendment to the IRDA (Registration of Indian Insurance Companies) Regulations 2000 in order to provide the mechanism for calculation of the permissible foreign investment limit of 49%. Capital requirements: For insurers: An applicant who files an application with the Insurance Regulatory and Development Authority of India (IRDAI), the insurance regulator, for grant of a certificate of registration as a life or non-life insurer is required to have Rs.100 Crore (approx. US$ 14,925,373) or more paid up equity share capital. For brokers: Insurance brokers are required to exclusively carry on the distribution of insurance products. Any company, limited liability partnership or co-operative society may apply to the IRDAI for grant of the insurance broker license. Applicants may register as either direct brokers, reinsurance brokers or composite brokers (involved in both direct and reinsurance broking). The minimum capital for direct brokers is Rs.50Lakh (c. US$ 74,626); Rs.2 Crore (c.US$ 298,507) for reinsurance brokers and Rs.2.5 Crore (c.US$ 373,134) for composite brokers. All insurance brokers are required to be part of the Insurance Brokers Association of India. Some key compliance issues: The Indian insurance sector is highly regulated. The IRDAI has issued various regulations governing the functioning and compliance requirements of all entities in the insurance sector. The compliance requirements include one-time requirements to Kennedys Singapore & Kennedys Hong Kong February 2016 Page 12 of 63 obtain approval from or report to the IRDAI, and ongoing requirements. For insurers: - For insurers, one of the key compliance requirements is to obtain approval for all insurance products from the IRDAI. - Insurance products can only be offered if the terms and conditions have been approved by the IRDAI under its file and use procedure. Any amendments to insurance products must also be approved by the IRDAI. - Under the IRDAI rules and regulations, insurers and intermediaries must carry on all core functions themselves. Only non-core activities can be outsourced to external service providers, in accordance with the rules on outsourcing. In addition, there are periodic reporting requirements (with the IRDAI) in relation to agreements entered into for outsourcing any function. - All insurers must comply with public disclosure requirements by publishing key information, including balance sheets and profit and loss accounts on their websites and in newspapers. In addition, appropriate certificates must be filed with the IRDAI by insurers on a periodic basis, confirming compliance with the public disclosure requirements. - Another significant compliance requirement was set out in the Insurance Act 1938 (“Insurance Act”) and the IRDAI regulations relating to permissible payments by insurers to intermediaries, including the maximum amounts payable as commission to insurance agents. The Amendment Act has repealed Kennedys Singapore & Kennedys Hong Kong February 2016 Page 13 of 63 certain provisions of the Insurance Act in relation to permissible payments and has provided that these will now be governed by appropriate regulations. The regulations from the IRDAI in this regard are awaited. - Insurers are also required to value their assets, determine their liabilities and maintain required solvency margins in the specified manner, the details of which must be periodically filed with the IRDAI. For brokers: - Brokers are always required to maintain a net worth equal to their minimum capital. - The IRDAI requires brokers to follow a strict code of conduct with regard to record keeping, soliciting business and receiving/making payments. Brokers’ licenses issued by the IRDAI will be valid for a period of three years from the date of issue during which period all brokers are required to take out and maintain a professional indemnity insurance. - Not more than 50% of a broker’s business shall emanate from a single client. - The remuneration payable to brokers by insurers shall not exceed the amounts specified by the IRDAI. - Brokers are required to maintain their books of accounts and other records in the manner as specified by the IRDAI and also file returns with the IRDAI on a periodic basis. - The IRDAI has the authority to cancel a licence issued by it at any time if it feels that a broker Kennedys Singapore & Kennedys Hong Kong February 2016 Page 14 of 63 is not in compliance with the prescribed regulatory framework. Notable costs: For insurers: Application fees: Life Insurers (linked, non-linked or both):Rs.50,000 (c.US$ 746). General & Health Insurers: Rs.50,000 (c. US$ 746). Annual fees: Are to be prescribed by the regulations to be framed by the IRDAI. For insurance brokers: Application fees: Direct Broker: Rs.20,000 (c.US$ 298). Reinsurance broker: Rs.25,000 (c. US$ 373). Composite broker: Rs.40,000 (c.US$ 597). Renewal Fee: Rs.1,000 (c.US$ 15) to be submitted with the application for renewal. Annual fees: Direct Broker: 0.50% of remuneration earned in the previous year. Subject to a minimum of Rs.25,000 (c. US$ 373) and a maximum of Rs.100,000 (c. US$ 1,492). Reinsurance Broker: 0.50% of the remuneration earned in the previous year. Subject to a minimum of Rs.75,000 (c. US$ 1,119) and a maximum of Rs.300,000 (c. US$ 4,476). Composite Broker: 0.50% of the remuneration earned in the previous year. Subject to a minimum of Rs.125,000 (c.US$ 1,865) and a maximum of Rs.500,000 (c. US$ 7,462). Kennedys Singapore & Kennedys Hong Kong February 2016 Page 15 of 63 INDONESIA Contributed by: Makarim & Taira S. Foreign ownership/management limitations: - The initial maximum foreign ownership in an Indonesian “insurance company” is 80% (the foreign share ownership may be gradually increased beyond the maximum permitted foreign ownership, as long as some Indonesian participation is maintained). - The foreign shareholder(s) must be engaged in the same business, or be a holding company with a subsidiary engaged in the same business as the Indonesian “insurance company”. - “Insurance company” means both insurers and intermediaries. More specifically, it may be: a Casualty Loss (Non-Life) Insurance Company a Life Insurance Company a Reinsurance Company a Loss Insurance Adjuster an Insurance Agency an Insurance Broker a Reinsurance Broker - Note: Under the 2014 Insurance Law, if an Indonesian company (or companies) holds the initial 20% local shareholding, then the company (or companies) must ultimately be wholly owned by Indonesian citizens; it (or they) may not have any foreign ownership at any level. INDONESIA Kennedys Singapore & Kennedys Hong Kong February 2016 Page 16 of 63 - If a shareholder is a Controlling Shareholder of an insurance company, the shareholder may not be the Controlling Shareholder of another insurance company. A “Controlling Shareholder” is defined as any individual, legal entity, or business group which: I. owns 25% (or more) of issued shares with voting rights or capital; or II. owns less than 25% of issued shares with voting rights or capital but it can be proven that the individual, legal entity or business group has control in the company. For insurers: - Any insurer or reinsurer must have at least three directors who must reside in Indonesia, and at least three commissioners, a majority of whom must reside in Indonesia. A foreign citizen can only be a director or a commissioner of a joint venture insurance company i.e. one which has foreign shareholders. - Directors of an insurer may only hold one other position as a commissioner in one other insurer, while commissioners of an insurer can only hold one other position as a director, a commissioner or a member of a Sharia Supervisory Board in one other company (whether an insurer or not). For brokers: - Insurance and reinsurance brokerage companies whose brokerage income is at least Rp 10,000,000,000 (approx. US$715,000) must have at least two directors who must reside in Indonesia and at least two commissioners, a majority of whom must reside in Indonesia. Capital requirements: The following are the minimum paid up capital requirements (as at the time of printing, US$1 = approx. Rp 14,000): Kennedys Singapore & Kennedys Hong Kong February 2016 Page 17 of 63 I. Rp 100,000,000,000 (approx. US$7,150,000) for the establishment of an insurance company; II. Rp 200,000,000,000 (US$14,300,000) for the establishment of a reinsurance company; III. Rp 1,000,000,000 (approx. US$71,500) for the establishment of an insurance broker or a reinsurance broker; IV. Rp 50,000,000,000 (approx. US$3,575,000) for the establishment of a Sharia insurance company; and V. Rp 100,000,000,000 (approx. US$7,150,000) for the establishment of a Sharia reinsurance company. Some key compliance issues: - To operate, an insurance company must be a limited liability company or a cooperative or a mutual business deemed a legal entity, if it was established before the 2014 Insurance Law came into force. Branches of foreign insurers are not permitted. - All insurance businesses require a business license from the Financial Services Authority (Otoritas Jasa Keuangan or “OJK”). An ‘insurance business’ is any business providing insurance or risk management services, reinsurance risk services, marketing or distributing insurance products or Sharia insurance products, consultancy and insurance brokerage services, Sharia insurance, reinsurance or Sharia reinsurance or insurance appraisal services. It is therefore clear that (re)insurers, brokerages and other insurance intermediaries must be licensed. For insurers: - The 2014 Insurance Law distinguishes between Sharia-based insurance companies and conventional insurance companies, as regards Kennedys Singapore & Kennedys Hong Kong February 2016 Page 18 of 63 licensing, the paid up capital requirements, etc. The Sharia business unit of a company must be separate from its conventional insurance or reinsurance division. - Portfolio transfers are permitted with approval from the OJK. There are no specific provisions on portfolio transfers. The OJK plans to issue an applicable regulation, but has not yet done so. - If an insurer intends to market an insurance product, it must first submit a notification to the OJK. If the OJK does not respond within 14 working days, the insurer may market the product. - Risks located in Indonesia can only be insured by local insurers, unless no local insurer can or is willing to provide insurance cover. In this situation, a foreign insurer (non-admitted insurer) may market its insurance services to the potential insured. - Insurers cannot outsource core functions. They may only outsource peripheral functions such as accounting and IT. - The OJK requires the following parties to undertake a ‘fit and proper’ test before they can be appointed and perform their duties and functions or before they can invest: I. members of the Board of Directors and Board of Commissioners; II. members of the Sharia Supervisory Board; III. members of the Board of Representatives; IV. experts; V. foreign employees; and Kennedys Singapore & Kennedys Hong Kong February 2016 Page 19 of 63 VI. Controlling Shareholders. - All insurers and reinsurers are required to establish a Guarantee Fund in the form and amount specified by the OJK. - Insurers must participate in the so-called ‘policy guarantee program’. The aim of this program is to secure reimbursement of all or part of insurance policies to their holders or the insured when the OJK revokes an insurer’s license. However, a regulation with the details of the policy guarantee program has not been issued yet. - Insurance companies have recently been required to optimize domestic insurance capital by placing as much reinsurance as possible with local reinsurance companies. Doubts exist, though, as to whether domestic reinsurers currently have sufficient technical capabilities or the capacity to fulfil this role. This requirement may herald more joint ventures between foreign and local reinsurers, with the latter seeking to address those deficiencies while the former may look upon the requirement to cede domestically and the increased business that will bring domestic reinsurers as sufficiently attractive for investment into them. - Assets and liabilities associated with the rights of policyholders, the insured or participants must be separate from the other assets and liabilities of insurers. - All insurance companies must be members of one of the insurance business associations according to their line of business. - All insurance companies must apply antimoney laundering policies and prevent the funding of terrorism. - Kennedys Singapore & Kennedys Hong Kong February 2016 Page 20 of 63 Policies and premiums - Every insurance policy must provide at least the following information, among others: the effective date of the insurance cover, the benefits of the insurance policy, the premium to be paid including the schedule and currency for payment, the dispute settlement mechanism, and the governing language. - Insurance policies must be printed clearly. - All insurance policies which are issued and marketed in Indonesia must be in the Indonesian language or bilingual. - Premiums must be calculated based on fair assumptions and insurance practices that are generally accepted. Life agents and commissions - Under the applicable regulation, an agent may only have an agency contract with one life insurer and therefore be paid commissions by only that one insurer. For brokers: - Brokers can be insurance brokers or reinsurance brokers. - Non-admitted insurance or reinsurance products cannot be marketed. To be marketed in Indonesia, insurance and reinsurance products must be approved by the OJK. - Non-life brokerage commissions arising from policies for the protection of assets from fire, lighting, explosions, aircraft impacts and smoke are capped at 15% of the premium or contribution. For motor insurance, brokerage commissions are capped at 25%. Brokers do not have to disclose the commissions they will receive or have received. Kennedys Singapore & Kennedys Hong Kong February 2016 Page 21 of 63 - Brokers are prohibited from withholding or managing premiums or contributions obtained from policyholders or participants. - Brokers must deliver the premiums and contributions to the insurers before the premium payment time limits under the relevant insurance policies expire. If a broker fails to do so, it will be held responsible for the payment of any claim for losses incurred after the payment time limit expires. - Brokers may not make insurance arrangements with insurance or reinsurance companies with which they are affiliated. - Insurance broking companies and reinsurance broking companies must appoint experts who are qualified and certified by the relevant professional association. Notable costs Insurance business license fee for insurers and reinsurers : Rp 100,000,000 (approx. US$7,150); - for corporate insurance and reinsurance brokers, insurance agencies, insurance loss appraisal companies, actuarial consultants: Rp 5,000,000 (approx. US$350). Annual fee for their regulation, supervision, inspection and investigation - for insurers and reinsurers: 0.045% of their assets, or at least Rp 10,000,000 (approx. US$700); - for corporate insurance and reinsurance brokerage companies, insurance agencies, insurance loss appraisal companies, actuarial consultants: 1.2% of their income, or at least Rp 5,000,000 (approx. US$350). Kennedys Singapore & Kennedys Hong Kong February 2016 Page 22 of 63 LAO PDR (LAOS) Contributed by: DFDL Lao PDR Foreign ownership/management limitations: No limitation. Capital requirements: For insurers: - Insurers must have a registered capital of at least LAK 16 billion (approximately US$ 2 million) and must maintain this throughout the operation of the business. 80% of the registered capital must be paid in within 90 days of registration of the business and the remainder must be deposited within one year of registration. - The insurance business must also maintain a security deposit of one third of its registered capital for each type of insurance (life or nonlife) that it writes. For brokers: - The registered capital requirements for an insurance broker business have not yet been provided by the authorities. Some key compliance issues: For insurers: - Activities, properties or assets of Lao citizens or foreigners living in the Lao PDR can only be insured with an insurance company licensed to establish and operate insurance business in the country. If a foreign insurer has not been licensed as such in Lao PDR, it is then prohibited from providing insurance services there. However, in practice, it is not uncommon for insurance for Lao risks to be sought from and written by foreign insurers not licensed in the country. LAO PDR (LAOS) Kennedys Singapore & Kennedys Hong Kong February 2016 Page 23 of 63 - An exception to the restriction above is for reinsurance, which may be provided by nonadmitted foreign reinsurers. - Entities engaging in insurance business must obtain an investment licence and also an insurance business operation licence prior to undertaking insurance activities. The regulator is currently drafting Guidelines On Issuing Insurance Business Operation Licences. Although a scheme to issue business operation licenses is already in place under existing regulations, in practice the regulator may delay the issuance of any such licences until the guidelines are produced. There is some indication that the regulator may issue an interim approval to operate prior to the issuance of the guidelines but then the holder of any such approval will still likely be required to comply with the guidelines, once issued, in order to carry on business. - Exchange controls prohibit payments for insurance or on claims in anything other than Lao currency, except with approval of the Bank of Lao PDR. In practice, however, this restriction is widely ignored. - Motor vehicle insurance is compulsory, with the scope and form of the insurance being prescribed by law. - Life insurance policies have prescribed content, and all policies must contain certain key content. - There is a general three year limitation period on claims. For brokers: - Insurance broker business operations are subject to the same compliance procedures as for insurers, to the extent applicable, such as regarding the requirement for locallyadmitted direct insurance for Lao PDR citizens Kennedys Singapore & Kennedys Hong Kong February 2016 Page 24 of 63 & foreign residents, and exchange controls, but brokerages must also obtain specific authorization from the authorities to undertake brokerage activities. - An insurance broker must purchase professional indemnity insurance for its insurance broking activities at an insurer operating in Lao PDR. Notable costs: - An investment business licence entails an official fee of LAK 320,000 (approximately US$ 40). - The cost of the insurance business operation license has not yet been announced. Kennedys Singapore & Kennedys Hong Kong February 2016 Page 25 of 63 MALAYSIA Contributed by: Shaikh David Raj Foreign ownership/management limitations: - The industry is regulated by the Financial Services Act 2013 which defines insurance business as including reinsurance business and insurance broking business. For insurers: - Foreign equity participation of up to 70%. - Foreign equity participation beyond 70% will be considered on a case-by-case basis for players who can “facilitate consolidation and rationalisation of the insurance industry”. For insurance brokers: - Foreign equity participation of up to 49%. There is an apparent delay in the relaxation of the foreign ownership rules for brokers by the Bank Negara Malaysia (“BNM”), which regulates the Malaysian insurance sector, despite the new Financial Services Act 2013. Capital requirements: Minimum Capital - Licensed insurer: RM100 million (approx. US$ 23.7 million) - Licensed general reinsurer: RM100 million - Licensed life reinsurer: RM50 million (approx. US$ 11.85 million) - Approved broker: RM1 million (approx. US$ 237,000) unimpaired MALAYSIA Kennedys Singapore & Kennedys Hong Kong February 2016 Page 26 of 63 Minimum Amount of Surplus of Assets over Liabilities - Licensed foreign reinsurer: RM20 million (approx. US$ 4.74 million) RBC Framework - A risk-based capital framework applies to all licensed insurers and reinsurers. There is no fixed capital adequacy ratio (CAR). The formula to compute CAR is as follows:- CAR = Total capital available x 100% Total capital required - The total capital available is the aggregate of Tier 1 capital (for e.g. issued and fully paidup ordinary shares) and Tier 2 capital (for e.g. cumulative irredeemable preference shares) less the deductions (for e.g. goodwill and other intangible assets, deferred tax income and assets pledged to support credit facilities). - The total amount of Tier 2 capital must not exceed the amount of Tier 1 capital. - The total capital required is the aggregate of capital charges for each insurance fund and assets in the shareholders’ or working fund. - The BNM has set a Supervisory Target Capital Level (STCL) of 130%. - Each licensed insurer has to set its respective Individual Target Capital Level, which must be higher than the STCL set by the BNM. Some key compliance issues: For insurers: - Only licensed insurers can conduct insurance business in Malaysia. Prior written approval from the BNM is required before entering into a general insurance contract with a non- Kennedys Singapore & Kennedys Hong Kong February 2016 Page 27 of 63 admitted insurer. Non-admitted insurers are not allowed to conduct marketing activities in Malaysia. - The issuance of new licenses for insurance business is currently frozen, and new entrants can only access the Malaysian market by way of mergers and/or acquisitions. Given that the regulator on a case by case basis may consider relaxing foreign share ownership beyond 70% to facilitate consolidation in the insurer sector, market access through mergers and acquisitions could perhaps be advantageous over a fresh licence application in any case. - The BNM may require a licensed insurer to maintain assets within the country. - The appointment of a chairman, directors or a chief executive officer of a licensed insurer must be approved by the BNM. - A CEO of a licensed insurer must have his principal or only place of residence within the country. - Regarding acquiring an interest in shares of a licensed insurer, prior written approval of:- (i) The BNM is required to acquire an aggregate interest of 5% or more; (ii) The BNM is required for the acquirer to subsequently hold an aggregate interest of and/or exceeding any multiple of 5%, or if the percentage holding triggers a mandatory offer under the Malaysian Code on TakeOvers and Mergers 1998 (more than 33%); (iii) The Finance Minister is required to acquire an aggregate of more than 50% Kennedys Singapore & Kennedys Hong Kong February 2016 Page 28 of 63 interest in shares in the licensed insurer. It is worth noting that approvals of the BNM or the Finance Minister are usually required in two separate and distinct phases: (a) before any related negotiations commence; and (b) prior to the execution of the related definitive contract(s). - The prior written approval of the Finance Minister is also required to dispose of shares in an insurer such that the disposer no longer has a 50% shareholding in the insurer or otherwise control over it. - A company which holds an aggregate of more than 50% of the shares of a licensed insurer must make an application with the BNM to be approved as a Financial Holding Company. - A company that has control over a licensed insurer and its financial group may also be required to propose being approved as a Financial Holding Company. - The maximum percentage of agency commission payable on a life insurance policy with premium/contribution paying terms of 20 years or more is 171% of annual premium/contribution payable over a 6-year period. - With a life policy/certificate with a premium/contribution paying term of less than 20 years, the commission limit will be pro-rated. - Islamic insurance business and Labuan insurance business are regulated separately. For insurance intermediaries: - All insurance brokerages must be approved by the BNM before commencing business. Kennedys Singapore & Kennedys Hong Kong February 2016 Page 29 of 63 - BNM approval is required for any agreement/arrangement to acquire more than 50% of the shares in or otherwise control over any insurance broker (and the BNM is to be notified of any agreement/arrangement to acquire 5% or more of such shares). No such requirement applies to insurance agents. - An approved insurance broker is required to set up a separate bank account for all monies received from an insured/licensed insurer. - Non-admitted insurance cannot be marketed in Malaysia. Notable costs: - Licensed insurer & reinsurer: Annual fee of RM25,000 (approx. US$5,900) per class of business. - Annual fees for 3 years shall be paid in advance in a single payment on or before 15 December before the beginning of the first year of such three year period. - Approved insurance broker: Annual fee of RM2,000 (approx. US$470). - An additional annual fee of RM250 (approx. US$60) shall be paid if the approved insurance broker also carries on Takaful (Islamic) broking business. - Annual fees shall be paid in advance in a single payment for the period approved by the BNM. Payment is to be made within 7 days from date of approval/renewal. Kennedys Singapore & Kennedys Hong Kong February 2016 Page 30 of 63 MYANMAR Contributed by: Polastri Wint & Partners Foreign ownership/management limitations: Outside Special Economic Zones1 : Foreign ownership of insurance and insurance brokerage companies is not permitted, save where limited insurance products are provided within Special Economic Zones (as notified under the Myanmar Special Economic Zone Law dated 23 January 2014). Outside of the Special Economic Zones (SEZs), insurance and insurance brokerage companies are required to be held 100% by Myanmar citizens with citizen directors only. The insurance business sector is only now being liberalized in small incremental steps. State-Owned Myanma Insurance was the only insurer for more than half a decade after nationalization of the sector in 1963. By October 2014, a total of twelve private companies (all 100% Myanmar citizen-owned companies) were granted insurance business licenses by the Insurance Business Supervisory Board. Foreign insurers and brokers are ordinarily allowed to set up representative offices by which only business development, market research and liaison activities are permitted to be undertaken. There has been speculation regarding further liberalization of the insurance sector in 2016, when the Government of Myanmar may issue insurance business licenses to foreign-held entities. For participants who are keen on penetrating the insurance market and conducting full operations in Myanmar in the future, it is highly advisable to set up a representative office 1 Special Economic Zones are designated geographical areas within Myanmar in which businesses located there are eligible for tax incentives. MYANMAR Kennedys Singapore & Kennedys Hong Kong February 2016 Page 31 of 63 as soon as practicable to be eligible to apply for an insurance business license. This is because informed sources and current practices suggest that only those foreign insurance businesses with a presence already in Myanmar will be invited to apply for insurance business licences. Within Special Economic Zones: Very recently, a limited number of foreign companies have been granted temporary licenses to undertake commercial operations in the insurance sector exclusively within the SEZs. The insurance business undertaken by the foreign licensees operating in the SEZ must be carried out in collaboration with Myanma Insurance, such that Myanma Insurance will underwrite 10% of the insurance policies offered. Reinsurance is made available through Myanma Insurance only, with Myanma Insurance receiving 15% of the total premium as service fees. In practice, foreign licensees can (for the moment) only insure foreign companies which are operative within the Thilawa SEZ. It is uncertain if such foreign licensees may be allowed to operate within other SEZs as well. The current criterion determined by Ministry of Finance for selection of foreign licensees (among other criteria) that requires a representative office to have been established in Myanmar for at least three years prior to application for an insurance business license acts as a hindrance to many prospective new market participants. Capital requirements: For insurers: - Minimum paid up capital of an insurance company depends on the nature/class of insurance products offered. - Companies offering life insurance are required to have a minimum paid-up capital of Kyats 6 billion (approx. US$4.7 million). Kennedys Singapore & Kennedys Hong Kong February 2016 Page 32 of 63 - Companies offering general insurance products such as fire insurance, vehicle insurance, cash-in-transit or cash in-safe insurance, special transportation insurance and marine cargo insurance are required to have a minimum paid-up capital of Kyats 40 billion (approx. US$31.3 million). - Companies offering both categories of insurance products, are required to have a minimum paid-up capital of Kyats 46 billion (approx. US$36 million). Marine cargo insurance can only be conducted together with life insurance. As a result, the minimum capital requirement for companies offering the same shall be Kyats 46 billion. - The aforementioned paid-up capital is also subject to further requirements: 10% of such capital needs to be deposited at Myanmar Economic Bank; and 30% of such capital needs to be allocated for the purchase of Treasury Bonds of the Union Government of Myanmar. For brokers: - There are currently no written regulations on minimum capital. Some key compliance issues: The insurance regulatory regime in Myanmar is still at a very formative stage and key compliance provisions are usually set forth in the insurance business licenses themselves. Typical provisions are: - Operations of the licensed insurance companies shall be commenced within 12 months from the date on which the insurance licence was granted. If operations are not commenced within the said period or in the event of discontinuity of business, the Insurance Business Supervisory Board may cancel the insurance license and the same shall be returned to the Board. Kennedys Singapore & Kennedys Hong Kong February 2016 Page 33 of 63 - Licenses cannot be transferred to another person. This can be a serious issue in the future when foreign companies shall be allowed to do insurance business. In Myanmar, most corporate acquisitions, mergers and joint ventures occur by way of transfer of assets into a joint-venture company. As such, it is likely that a joint venture with existing licensees (if these may be permitted in the future) shall still necessitate re-applying for a new insurance business license. This perhaps serves to emphasise again the importance of establishing a representative office in Myanmar to be eligible to apply for insurance business licences when they become available to foreign businesses outside SEZs; it may not be the case that licenses of existing licensees can be obtained through merger & acquisition activity or joint ventures. - Only the classes of insurance products permitted to be offered under the insurance business license can be written by the licensee. Notable costs: - Initial license fees of Kyats 3 million (approx. US$2,350). - Annual renewal fees of Kyats 1 million (approx. US$783). Kennedys Singapore & Kennedys Hong Kong February 2016 Page 34 of 63 PAKISTAN Contributed by: Liaquat Merchant Associates Foreign ownership/management limitations: For insurers: - There are no bars on foreign ownership/management of insurers in Pakistan. - However it is not possible to act as an insurer in Pakistan unless the said insurer has been incorporated as a public limited company in Pakistan. - Foreign investors are allowed 100% repatriation of profits. - In accordance with recent statistics, currently there are approximately 40 nonlife insurers and 9 life insurers operating in Pakistan, including general Takaful operators and a state-owned company. - The individual and group life insurance sectors together account for about 99% of the total life insurance business in the country. Other types of life insurance products such as annuity plans, pension plans, children’s education plans and accident and health insurance are yet to gain popularity. - In terms of general insurance, motor insurance has the largest share and constitutes approximately 50% of total general insurance business. - The insurance industry is a growing market in Pakistan and is still considered to be in its infancy stage. For reinsurers: - It is permissible to act as a reinsurer on a non-admitted basis. However, the Securities and Exchange Commission of Pakistan (“Commission”) must approve reinsurance arrangements made by local insurers. Furthermore, it is compulsory for local insurers to offer to cede 35% of their reinsurance policies to the Pakistan PAKISTAN Kennedys Singapore & Kennedys Hong Kong February 2016 Page 35 of 63 Reinsurance Company Limited. Also, foreign reinsurers may only write reinsurance on a facultative basis on terms identical to those offered on the local market and only with the permission of the Commission. For brokers: - There are no bars on foreign ownership/management of insurance brokers in Pakistan. - No insurer or director of an insurer may hold any direct or indirect ownership interest in an insurance broker or take part in the management or direction of an insurance broker and vice versa. - No person other than a company shall be eligible to be licensed as an insurance broker. Takaful (Shariah Compliant Insurance) - In May 2014, the Commission reached a compromise with existing Takaful operators and the 2012 Rules replaced the Takaful Rules 2005. - Under the 2012 Rules, only insurers registered with the Commission are eligible to conduct Takaful business in Pakistan, subject to obtaining permission. Life insurers may transact Family Takaful business, while non-life insurers may transact General Takaful business. - As a consequence of the eligibility criteria under the 2012 Rules, Takaful business cannot be transacted in Pakistan on a nonadmitted or offshore basis. However, offshore or non-admitted Takaful operators may offer re-Takaful services to local Takaful operators and local Takaful operators may enter into contracts of offshore/non-admitted reinsurance where appropriate local, admitted re-Takaful arrangements are not available. Kennedys Singapore & Kennedys Hong Kong February 2016 Page 36 of 63 - As of September 2014, the Commission had granted Takaful licences to two conventional insurers, with a further 10 applications pending. As a result, the Takaful industry is likely to see significant growth in the coming years. Capital Requirements: For insurers: - Minimum paid up capital requirement of Rs. 500 million (approx. US$4.8 million) for life insurance. - Minimum paid up capital requirement of Rs. 300 million (approx. US$2.9 million) for non-life insurance. - As per the Commission’s notification, the requirements regarding minimum paid up capital will be increased for the years 2016 and 2017. It is likely that the minimum paid up capital requirements will continue to be increased on an annual basis. - All insurers must deposit and keep deposited either in cash or approved securities with the State Bank of Pakistan not less than 10% of their paid-up capital. - Non-life insurers must at all times have admissible assets (as prescribed by the Commission) in excess of their liabilities in Pakistan equal to or greater than Rs. 150 million (approx. US$1.45 million). - Life insurers must at all times maintain in their shareholders’ fund a surplus of admissible assets in Pakistan over liabilities in Pakistan of not less than Rs. 165 million (approx. US$1.58 million) or otherwise in accordance with a specified calculation if given special permission by the Commission. - Appointment of directors, CEOs and principal officers of insurers must be approved by the Commission. Insurers are required to conduct a fitness and propriety test in accordance with the Insurance (Sound and Prudent Management) Regulations 2012. Kennedys Singapore & Kennedys Hong Kong February 2016 Page 37 of 63 - Insurers are required to invest a certain proportion of their assets in government securities, depending on whether they are life or non-life insurers. For brokers: - Minimum paid up share capital requirement Rs. 10 million (approx. US$96,000) for local brokers and USD 300,000 for a foreign broker. - Deposits of half a million rupees (approx. US$4,800) either in cash or approved securities required. - Brokers are required to obtain and maintain professional indemnity insurance. Some key compliance issues: For insurers: - All insurers must obtain a certificate of registration from the Commission to carry on insurance business in Pakistan. - Registration must be renewed on an annual basis. - Every insurer shall at the expiration of each year prepare and deliver to the Commission with reference to that year annual statutory accounts duly audited by an approved auditor. - Life insurers must appoint an approved actuary to carry out an investigation into the financial condition of the life insurer’s business at the end of each year. - The approval of the Commission is required for any proposed acquisition or transfer of a shareholding of more than ten per cent (10%) in an insurance company. Furthermore, in the case of a non-life insurer, such approval is required for the transfer of the whole or any part exceeding ten per cent of the business (as measured in either premium income, liabilities for unearned premium, outstanding claims or premium deficiency reserve) located in Pakistan. Kennedys Singapore & Kennedys Hong Kong February 2016 Page 38 of 63 - The Commission has the power to prescribe rules for matters regarding policy and promotional material, including the form and content thereof. For brokers: - All insurance brokers must be licensed by the Commission. - A broker must report annually audited accounts of the insurance broking business and such other information and statements as may be prescribed by the Commission. Notable costs: - Insurer annual supervision fee of: (a) Rs. 100,000 (approx. US$960); and (b) Rs. 2.00 per every Rs. 1,000 (approx. US$9.6) of gross direct premiums written in Pakistan during the calendar year preceding the previous calendar year (i.e. the year before last), subject to a maximum of Rs. 50 million (approx. US$480,000). - Issue/Renewal of broker’s licence: Rs. 10,000 (approx. US$96) - Refundable if not granted. - Upon incorporation under the Companies Ordinance 1984, a fee calculated in accordance with the company’s authorized capital is payable to the Commission. Kennedys Singapore & Kennedys Hong Kong February 2016 Page 39 of 63 PHILIPPINES Contributed by: Romulo Law - Corporate Banking & Finance Foreign ownership/management limitations: For insurers, reinsurers and brokers: - A company, domestic or foreign, authorized to do business in the Philippines may engage in the business of insurance, reinsurance, or brokering. - There is no restriction on foreign ownership of Philippine (re)insurers or brokers. - In case of a foreign (offshore) insurance company, it must file with the Insurance Commission a written power of attorney designating a Philippine resident as its general agent on whom any notice, proof of loss, summons, and other legal processes may be served and consenting that service upon such general agent is deemed service upon the foreign company at its home office. - Further, a foreign insurance company must make and file with the Insurance Commissioner (“Commissioner”) an agreement or stipulation executed by its authorized person(s) in the following language: “The (name of company) does hereby stipulate and agree, in consideration of the permission granted by the Insurance Commissioner to transact business in the Philippines, that if at any time said company shall leave the Philippines, or cease to transact business therein, or shall be without any agent in the Philippines on whom any notice, proof of loss, summons, or legal process may be served, then in any action or proceeding arising out of any business or transaction which occurred in the Philippines, service of any notice provided by law, or insurance policy, proof of loss, summons, or other legal process may be made upon the Insurance Commissioner, and that such service upon the Insurance Commissioner shall have the same force and effect as if made upon the company.” Capital requirements: For insurers: - Domestic life and non-life insurer Unimpaired paid-up capital at least equal to Php 1 billion (approx. US$21.6 million). As a pre-licensing requirement of a new insurance company, the Commissioner may additionally require PHILIPPINES Kennedys Singapore & Kennedys Hong Kong February 2016 Page 40 of 63 the stockholders or parent company to pay in cash to the company, in proportion to their subscription or interests, a contributed surplus fund of not less than Php 100 million (approx. US$2.16 million), which shall be unimpaired. - Branches of foreign life and non-life insurers Unimpaired capital or assets and reserve of not less than Php 1 billion (approx. US$21.6 million). Unimpaired statutory deposit at least equal to Php 1 billion (approx. US$21.6 million). As a pre-licensing requirement of a new branch office of a foreign insurance company, the Commissioner may require the company to have an additional fund of not less than Php 100 million (approx. US$2.16 million). For reinsurers: - All reinsurance companies authorized to transact solely reinsurance business must have capital of Php 3 billion (approx. US$64.8 million) paid in cash, of which at least 50% should be paid-up capital and, of the remainder, a contributed surplus of at least P400 million (approx. US$8.6 million) should be provided. For brokers: - Insurance Broker: minimum paid-up capital of P20 million (approx. US$432,000) - Reinsurance Broker: minimum paid-up capital of P20 million (approx. US$432,000) - Both Insurance and Reinsurance Broker: minimum paid-up capital of P50 million (approx. US$1.08 million) In all cases, the Secretary of Finance, upon recommendation of the Commissioner, may increase the minimum paid-up capital or cash asset requirement. Some key compliance issues: For insurers: - As of 31 December 2013, domestic life and non-life insurers are required to have a net worth (consisting of paid-up capital, retained earnings, unimpaired surplus, and revaluation of assets less cost of treasury shares) of at least Php 250 million (approx. US$5.4 million), to increase as follows: Kennedys Singapore & Kennedys Hong Kong February 2016 Page 41 of 63 Php 550 million (approx. US$11.9 million) by 31 December 2016 Php 900 million (approx. US$19.4 million) by 31 December 2019 Php 1.3 billion (approx. US$28 million) by 31 December 2022 - As of 31 December 2013, all branches of foreign life and non-life insurance companies are required to have a trusteed surplus (consisting of statutory deposit, home office inward remittance, and head office account) of at least Php 250 million (approx. US$5.4 million), to increase as follows: Php 550 million (approx. US$11.9 million) by 31 December 2016 Php 900 million (approx. US$19.4 million) by 31 December 2019 Php 1.3 billion (approx. US$28 million) by 31 December 2022 - The insurance company must at all times maintain the minimum paid-up capital and net worth requirements as prescribed by the Commissioner. - No insurance company, other than life, whether domestic or foreign, shall retain any risk on any one subject of insurance in an amount exceeding 20% of its net worth. - Portfolio transfers require the prior approval of the Commissioner and of the policyholders. - As a general rule, only “back office” functions, such as IT and human resources may be outsourced. Core functions can only be outsourced to parties holding a specific, requisite licence. For reinsurers: - All reinsurance companies authorized to transact solely reinsurance business must have a net worth of at least Php 2 billion (approx. US$43.2 million) by 31 December 2015, to increase as follows: Php 2.25 billion (approx. US$48.5 million) by 31 December 2016 Kennedys Singapore & Kennedys Hong Kong February 2016 Page 42 of 63 Php 2.5 billion (approx. US$ 53.8 million) by 31 December 2019 Php 3 billion (approx. US$64.6 million) by 31 December 2022 For brokers: - Insurance Broker A license to act as an insurance broker must be renewed every three years. A bond must be filed and maintained in force in favor of the people of the Republic of the Philippines executed by a company authorized to become surety upon official recognizances, stipulations, bonds, and undertakings in an amount fixed by the Commissioner, which in no case is less than P500 thousand (approx. US$10,800). The bond is intended to provide security for full accounting and due payment to the person(s) entitled to funds coming into the broker’s possession through insurance transactions under license. - Reinsurance Broker A license to act as reinsurance broker must be renewed every three years. Notable costs: Common costs: - SEC filing fee equivalent to: 1/5 of 1% of the authorized capital stock or subscription price of the subscribed capital stock, whichever is higher, plus a legal research fee of 1% of the filing fee; In case of branches of a foreign life and non-life insurer, 1% of the actual inward remittance of the branch converted into Philippine currency, plus a legal research fee of 1% of the filing fee. - For a foreign corporation, a fee for the application under the Foreign Investments Act in an additional sum of Php 2,000 (approx. US$43) - Pre-licensing examination fee for new companies applying for a license of Php 10,000 (approx. US$215) For insurers: Kennedys Singapore & Kennedys Hong Kong February 2016 Page 43 of 63 - New/Renewal of License (per year): Php 60,000 (approx. US$1,300) plus legal research fee of Php 600 (approx. US$13) - Supervision fee (per year): Php 75,000 (approx. US$1,615) to Php 175,000 (US$3,770), depending on the size of the insurance company - Filing fees of annual statements/audited financial statements per year of Php 40,000 (approx. US$860) plus legal research fee of Php 400 (approx. US$9) For reinsurers: - New/Renewal of License (per year): Php 60,000 (approx. US$1,300) plus legal research fee of Php 600 (approx. US$13) For brokers: - Insurance Broker New/Renewal of License (per year): Php 30,000 (approx. US$650) plus legal research fee of Php 300 (approx. US$6) Supervision fee (per year): Php 25,000 (approx. US$540) to Php 75,000 (US$1,620), depending on the size of the brokerage Filing fees of annual statements/audited financial statements per year Php 15,000 (US$325) plus legal research fee of Php 150 (approx. US$3). - Reinsurance Broker New/Renewal of License (per year): Php 30,000 (approx. US$650) plus legal research fee of Php 300 (approx. US$6) Supervision fee (per year): Php 25,000 (approx. US$540) to Php 75,000 (US$ 1,620), depending on the size of the brokerage Filing fees of annual statements/audited financial statements per year Php 15,000 (approx. US$325) plus legal research fee of Php 150 (approx. US$3). - Insurance Broker and Reinsurance Broker Kennedys Singapore & Kennedys Hong Kong February 2016 Page 44 of 63 New/Renewal of License (per year): Php 60,000 (approx. US$1,300) plus legal research fee of Php 600 (approx. US$13) Supervision fee (per year): Php 50,000 (approx. US$1,080) to Php 100,000 (approx. US$2,150), depending on the size of the brokerage Filing fees of annual statements/audited financial statements per year of Php 30,000 (approx. US$650) plus legal research fee of Php 300 (approx. US$6) Kennedys Singapore & Kennedys Hong Kong February 2016 Page 45 of 63 SINGAPORE Foreign ownership/management limitations: - None. - However: Regarding insurers, prior approval of the regulator is required to (a) enter into any agreement/arrangement to acquire 5% or more of the voting power or acquire 5% or more of the voting shares of a Singapore incorporated (re)insurer; or (b) acquire effective control of a Singapore incorporated (re)insurer through acquiring 20% or more of its shares or controlling 20% or more of its voting power, or by being able to instruct its directors, or by determining its policy. Regarding brokers, prior approval of the regulator is required to acquire 20% or more of the shares or control over 20% or more of the voting power in an insurance brokthailand er. No such requirements exist for other intermediaries. Capital requirements: For insurers: - Direct insurer (other than as described below): S$10 million (approx. US$7.2 million). - Direct insurer (writing investment-linked policies or short term accident and health policies only): S$5 million (approx. US$3.6 million) - Reinsurer: S$25 million (approx. US$18 million) - Captive insurer: S$400,000 (approx. US$ 287,000) - Authorised reinsurer: S$2 million (approx. US$1.44 million) per class of authorised SINGAPORE Kennedys Singapore & Kennedys Hong Kong February 2016 Page 46 of 63 reinsurance business (in the form of a bank deposit)2 - Approved MAT insurer: S$2 million (approx. US$1.44 million) (in the form of a bank deposit)2 - Insurers are required to maintain funds for each class of insurance business carried on in Singapore and offshore. A life insurer must establish individual funds for investmentlinked, participating and non-participating policies. Capital must be maintained against the insurer’s insurance risks, asset portfolio risk and asset concentration risks, at fund level and for the insurer in aggregate. - The regulator is expected to introduce a revised RBC framework in 2017, which will establish a prescribed capital requirement (PCR) and a minimum capital requirement (MCR) at insurance fund and insurer level. Under the current proposals, if the insurer’s capital falls below the PCR, it must submit a plan to the regulator to rectify the position within three months. For brokers: - Registered direct insurance brokers, general reinsurance brokers or life reinsurance brokers: minimum paid up share capital of S$300,000 (approx. US$215,000); - Any registered broker undertaking a combination of the above categories of brokerage is required to maintain paid up share capital of the aggregate of the applicable amounts stated above. - Registered brokers are also required to maintain a minimum net asset value of not less 2 Or 30% of gross premiums for the Singapore business written in the applicable financial year; or 30% of the gross liabilities incurred in respect of policies written for Singapore as at the end of the applicable financial year, whichever is higher. Kennedys Singapore & Kennedys Hong Kong February 2016 Page 47 of 63 than 50% of the minimum required paid up share capital. Some key compliance issues: For insurers: - All locally-established (re)insurers must be licenced. Direct, reinsurance and captive insurance licenses can be issued. A licensed life insurer may also write short-term accident and health policies. It is possible for an insurer to be licensed for both life and non-life. - For insurers without a presence in Singapore, but wishing to operate in the market: I. Reinsurers may be authorised by the regulator to solicit for business and collect premiums in Singapore; II. Overseas insurers which are licensed to conduct insurance business under the laws of other jurisdictions may carry on business in Singapore under a foreign insurer scheme established by the regulator; III. A person regulated under the laws of certain designated jurisdictions to write marine, aviation and transit insurance may be licensed as an approved ‘MAT’ insurer for persons in Singapore, and may then collect/receive premiums in Singapore. - Transfers of Singaporean insurance business have to be approved by the regulator and, with exception of reinsurance and captive insurer business, the scheme of transfer must be approved by a court. Notification of the transfer to policyholders by government gazette/newspaper advertisement will be required. - Co-branding by insurers is generally forbidden without the consent of the regulator. Any need for this consent should be considered early in acquisition activity, as the value of Kennedys Singapore & Kennedys Hong Kong February 2016 Page 48 of 63 the acquisition to the purchaser may diminish notably if one or more prominent brands cannot be utilised post-transaction. - Key executives must be approved by the regulator prior to their appointment (chief executive, deputy chief executive, appointed actuary (for life business), certified actuary (for non-life business or reinsurance business)). A licensed insurer incorporated in Singapore is also required to appoint a Chairman from its directors. - An insurer must have a certain number of independent directors on its board. The exact number is dictated by the type of insurer and its quantity of assets & gross premium income. Larger insurers will often be required to have a majority of independent directors. - Insurance written by insurers not regulated in Singapore can be acquired by Singaporean policyholders but cannot be marketed by those insurers. - Most policy forms are not heavily regulated. However, life, marine, work injury and motor vehicle policies are subject to specific form and content requirements. - Premiums for life policies and long-term accident & health policies must be in accordance with rates set by an actuary. - A Singapore-incorporated insurer must obtain the approval of the regulator before reducing capital. It should not be overlooked that overseas insurers that have been registered in Singapore, e.g. insurers permitted to operate under a foreign insurer scheme, are also required to notify the Singapore regulator before reducing capital. - An insurer may outsource. The regulator has to be notified when “material” outsourcing is planned, actioned or varied. Outsourcing of Kennedys Singapore & Kennedys Hong Kong February 2016 Page 49 of 63 all, or most of, risk management and internal control functions – including compliance, internal audit and financial accounting – is to be considered material. The outsourcing agreement must permit the regulator to audit the service provider. For intermediaries: - An agent must operate under a written authorisation from an insurer, unless being a licensed financial advisor or a financial advisor exempt from licensing. - Brokers must be registered with the regulator, unless falling within certain exempt categories e.g. banks, licensed financial advisors, etc. - Prior approval of the regulator is required if a brokerage wishes to appoint a chief executive or director. - As noted above, non-admitted insurance generally cannot be marketed, although brokers may market non-admitted reinsurance or non-admitted insurance for risks outside of Singapore, or otherwise when the regulator waives this restriction due to the exceptional nature of the risk or other exceptional circumstances require it. - Brokers cannot be remunerated by insurers with sole regard to any or all of the following: I. Number of direct policies arranged; II. Total premiums paid or payable under direct policies arranged; III. Total insured sums under direct policies arranged. - Brokers are obliged to report certain misconduct by their staff to the regulator, including for example fraud, negligence, Kennedys Singapore & Kennedys Hong Kong February 2016 Page 50 of 63 misrepresentation and serious breaches of the broker’s internal policies/codes of conduct which can lead to demotion, suspension or termination. If no such misconduct has occurred in a particular year, a declaration to that effect also has to be filed with the regulator. - Brokers are required to maintain professional indemnity insurance. For direct insurance brokers, a general reinsurance broker or a life reinsurance broker, in an amount not less than S$1 million (approx. US$720,000), under which the deductible allowed shall be: (a) Where the applicant is in the first year of operation, not more than 20% of the paidup capital; (b) In any other case, not more than 20% of the applicant’s net asset value as at the end of its preceding financial year. - For a broker undertaking one or more of the categories mentioned above, the cover must be the aggregate of the applicable amounts. - Brokers are required to maintain annual books of account, have them audited and submit them to the regulator. Notable costs: - Insurers and authorised reinsurers are required to pay annual fees. The fees vary depending on the type of licence held and size of the business being operated. Direct insurers can expect a levy of between S$70,000 – 140,000 (approx. US$50,000 – US$100,000); reinsurers between S$35,000 – 45,000 (approx. US$25,000 – US$32,000), at current rates. Approved MAT insurer: S$20,000 (US$14,000). Captive insurers currently pay S$6,000 (approx. US$4,000) per annum. - Brokers are required to pay annual fees (direct: S$7,000 (approx. US$5,000); general Kennedys Singapore & Kennedys Hong Kong February 2016 Page 51 of 63 reinsurance: S$5,000 (approx. US$3,600); life reinsurance: S$2,500 (approx. US$1,800)). Kennedys Singapore & Kennedys Hong Kong February 2016 Page 52 of 63 THAILAND Foreign ownership/management limitations: For insurers: - Generally restricted to 25% for both foreign shareholding & directors. - Routinely raised to 49% upon application to the regulator. - Possible to move to majority or total foreign ownership/management with approval of the Finance Minister, upon recommendation by the regulator, if it would “promote the strength of [an insurer] or for the soundness of the [insurance business].” - Holding companies are deemed foreign unless they satisfy all of the following conditions: I. Incorporated in Thailand; II. Thais hold more than 50% of the shares; III. Thais hold more than 50% of the shareholder voting rights. - New regulations indicate that any foreign shareholder holding more than 10% of a Thai insurer’s shares must be involved & experienced in the insurance business, be financially stable, have an operational network at an international standard and have a plan/expertise to assist the Thai insurer. - Presently, the most effective way to secure permission for majority/total foreign ownership is with regard to the regulator’s intention to reduce the number of participants in the non-life insurance sector, i.e. by acquiring and merging current insurers. THAILAND Kennedys Singapore & Kennedys Hong Kong February 2016 Page 53 of 63 For brokers: - Generally restricted to 49% foreign shareholding. It is possible to move to majority or total foreign shareholding upon obtaining particular licenses from the Ministry of Commerce. Under a bilateral treaty between Thailand and the United States, there is potentially a particularly expeditious route to achieve this. - No express limitation on foreign directors, but the authorized signatory must be a licensed Thai insurance broker. Capital requirements: For insurers: - Life insurer/reinsurer minimum share capital: Thai Baht 500 million (approx. US$14.1 million). - General insurer/reinsurer minimum share capital: Thai Baht 300 million (approx. US$8.5 million). - RBC requirements have been a major focus in recent years and are applicable to all insurers/reinsurers. The aim is to establish solvency margins to cover insurance risk, marketing risk, credit risk and clustered portfolio risk. The capital adequacy ratio is currently set at 140%. For brokers: - Minimum Thai Baht 2 million share capital (approx. US$56,000). - A capital fund must be maintained, at a rate of 0.25% of net income from commissions from the previous accounting period, but in any case not less than the following: Kennedys Singapore & Kennedys Hong Kong February 2016 Page 54 of 63 (a) Thai Baht 1 million (approx. US$28,000) for direct insurance or reinsurance brokerages; and (b) Thai Baht 1.5 million (approx. US$42,000) for direct & reinsurance brokerages. Some key compliance issues: For insurers: - All insurers/reinsurers must be licenced. Nonadmitted insurance can be acquired by Thai policyholders but cannot be marketed (reinsurance excepted). No insurance business licences are currently being issued; new participants must access the market through mergers/acquisitions. - Shareholders and their shareholdings must be reported annually to the regulator. New share issuances must receive prior approval from the regulator. - Directors must be approved by the regulator prior to their appointment. - There are no schemes for automatic transfers of insurance business. Policies have to be individually novated to an insurer acquiring the business, and also a broad plan of transfer has to be approved by the regulator before being effected. It is often considerably more efficient and effective to proceed by an acquisition of the shares of the target insurer, which only requires post-transfer notification to the authorities. - Premium rates and policy wordings must be approved by the regulator. New product wordings can take significant time to be considered, unless the process is attentively managed by the insurer. - Insurers cannot pay commissions to anyone other than licensed agents or brokers. This can Kennedys Singapore & Kennedys Hong Kong February 2016 Page 55 of 63 raise commercial concerns when, for example, a non-insurance organisation may agree to facilitate a policy sale by customer introductions. There are several remuneration alternatives available which are typically acceptable to the insurer and non-insurer. - Investment by insurers is heavily regulated and annual investment policies/plans must be submitted to the regulator. - Outsourcing of core functions is typically prohibited, although delegation of claims payments can be permitted by the regulator, and brokers may be authorised to collect premiums. There is also nothing to prevent insurers engaging advisors on underwriting and claims. - There is relatively little regulation of reinsurance and it is possible for liability for locally-insured risks to be substantially transferred overseas. For brokers: - Brokers must be licensed at a corporate and individual level3 . - As noted above, non-admitted insurance cannot be marketed (reinsurance excepted). - Subject to exceptions for fire, marine and certain types of motor insurance, non-life brokerage commissions are generally capped at 18%. Life brokerage commissions are effectively uncapped. There is no obligation upon brokers to disclose to the insured the commission to be received. - A broker may not be paid anything other than a commission by an insurer. 3 N.b. Corporate agency is not recognised in Thailand. Kennedys Singapore & Kennedys Hong Kong February 2016 Page 56 of 63 - Methods by which insurance may be sold by individual brokers, and the conduct of the sales themselves are heavily regulated. Notable costs: - Insurance business licence: Initial fee up to 2 million Thai Baht (approx. US$56,000); Annual renewal fee up to 200,000 Thai Baht (approx. US$5,600). - Corporate insurance brokerage licence: Initial fee of 40,000 Thai Baht (approx. US$1,100); Annual renewal fee of 12,000 Thai Baht (approx. US$340). Kennedys Singapore & Kennedys Hong Kong February 2016 Page 57 of 63 VIETNAM Contributed by: Indochine Counsel Foreign ownership/management limitations: For insurers: - A foreign insurer can set up a 100% foreign owned insurance company in the form of a limited liability company. - Only foreign non-life insurers can set up branches in Vietnam. - A foreign insurer can acquire up to 100% of the shares in a local insurer in the form of limited liability company. - A foreign insurer can only acquire up to 20% of the shares in a local insurer in the form of joint stock company4 , except for several statutory exceptions. - No limitation on foreign directors. For brokers: - A foreign broker can set up a 100% foreign owned insurance brokerage company in the form of limited liability company. - A foreign broker can acquire up to 100% of the shares in a local broker. - No limitation on foreign directors. Capital requirements: For insurers: - Non-life insurance legal capital5 : VND300 billion (approx. US$13.5 million). 4 Under Vietnamese law, a limited liability company may be a sole member limited liability company or a multi-member limited liability company with a maximum of 50 investors and cannot be listed. A joint stock company can be a public company with an unlimited number of shareholders and can be listed. 5 Means the minimum paid-up share capital. VIETNAM Kennedys Singapore & Kennedys Hong Kong February 2016 Page 58 of 63 - Life insurance legal capital: VND600 billion (approx. US$27 million). - Non-life and/or health reinsurance legal capital: VND400 billion (approx. US$ 18 million). - Life or life and health reinsurance legal capital: VND700 billion (approx. US$31.5 million). - Life, non-life and health reinsurance legal capital: VND1100 billion (approx. US$49 million). - Non-life branch legal capital: VND200 billion (approx. US$9 million). - An insurer must constantly maintain its paid-up charter capital/equity not less than the applicable legal capital during its operations. - An insurer must deposit part of its paid-up charter capital/equity, amounting to 2% of the applicable legal capital, at a commercial bank licensed to operate in Vietnam. For brokers: - Direct insurance or reinsurance legal capital: VND4 billion (approx. US$180,000). - Direct insurance and reinsurance legal capital: VND8 billion (approx. US$360,000). - A broker must constantly maintain its paid-up charter capital/equity not less than the applicable legal capital during its operations. Some key compliance issues: For insurers: - All insurers/reinsurers must be licensed and must operate within 12 months after being licensed. - Non-admitted non-life insurance must be sold in Vietnam via a locally-incorporated broker and can be acquired only by (i) foreign invested Kennedys Singapore & Kennedys Hong Kong February 2016 Page 59 of 63 enterprises with more than 49% foreign ownership or (ii) foreigners working in Vietnam. - A non-admitted life insurer is not allowed to sell, directly or indirectly, by itself or through an intermediary (agent or broker) its life insurance products in Vietnam. However, such insurer is allowed to sell, directly or indirectly, by itself or through an intermediary, its life insurance products to Vietnamese nationals and entities constituted in Vietnam but residing or being based either in its jurisdiction or in a WTO member state. - Policy clauses, premiums and commissions for each type of insurance product must be approved by the regulator. - The following changes in an insurer must receive prior approval from the regulator: name; charter capital; opening or closure of a branch or representative office; the location of the head office, a branch or a representative office; business scope and operation term; transfer of 10% shares or more; board chairperson, General Director or actuary; restructuring, mergers, dissolution, enterprise form conversion, outward investment. - Portfolio transfers can only occur with prior permission of the regulator and, assuming such permission is granted, must be publicly announced and notified to policyholders. Policyholders may then elect to terminate their policies within 15 days of receiving the notification. - To conduct concurrently life and non-life direct insurance business is not allowed, except that a life insurer may write personal accident and health care insurance as a supplement to life insurance. Kennedys Singapore & Kennedys Hong Kong February 2016 Page 60 of 63 - Inward investment by insurers may be conducted in certain sectors only. Outward investment by insurers must be prior approved by the regulator. - Insurers are subject to a strict regulatory reporting regime. - Audited annual financial statements must be published in accordance with law. - The General Director6 must reside in Vietnam during his / her term of office. - A non-admitted reinsurer underwriting local reinsurance risks must be headquartered in a country with which Vietnam has signed an international treaty, including cross-border insurance agreements in Vietnam. For example, a non-admitted reinsurer headquartered in another WTO country can provide reinsurance of Vietnamese risks. - No local insurance business registration is required for a non-admitted reinsurer to underwrite local reinsurance risks, provided however that the non-admitted reinsurer meets the following conditions: I. The non-admitted reinsurer is currently legally operating and meets all requirements on solvency stipulated by the law of the country where the nonadmitted reinsurer is headquartered; II. If the non-admitted reinsurer underwrites 10% or more of the local reinsurance risks, the non-admitted reinsurer must have a minimum credit rating of “BBB+” as rated by Standard and Poor’s or Fitch, or “B++” as rated by A.M. Best, or “Baa1” as rated by Moody’s, or equivalent ratings as rated by other qualified rating organizations in the most recent financial year compared 6 A General Director undertakes a similar role to that of a CEO. Kennedys Singapore & Kennedys Hong Kong February 2016 Page 61 of 63 to the date on which the reinsurance contract is entered into; III. If the non-admitted reinsurer is the parent company of or another company within the same group as a local insurer and lacks the statutory credit ratings, the local insurer must submit to the local regulator a letter from the regulator of the country where the non-admitted reinsurer is headquartered certifying that the nonadmitted reinsurer ensures its solvency in the financial year preceding the year it underwriters the local reinsurance risks. - Non-admitted reinsurers are subject to foreign contractor withholding tax. For brokers: - Brokers must be licenced at a corporate level7 . - Brokers must purchase professional indemnity insurance from local insurers. - A non-admitted broker can only provide insurance brokerage services to local insurers or branches of foreign non-life insurers. - Commission and other expenses payable by an insurer to a broker must not exceed 15% of the premium actually received from the policyholder. There is no obligation upon brokers to disclose to the policyholder the commission to be received. - The General Director must reside in Vietnam during his/her term of office. 7 Individual insurance brokers are not recognized in Vietnam. Kennedys Singapore & Kennedys Hong Kong February 2016 Page 62 of 63 Notable costs: For insurers: - Official fee for issuance / renewal of the business license of a non-life (re)insurer: VND70 million (approx. US$3,150). - Official fee for issuance / renewal of the business license of a life (re)insurer: VND140 million (approx. US$6,300). For brokers: - Official fee for issuance / renewal of the business license of a broker: VND4 million (approx. US$180). Kennedys Singapore & Kennedys Hong Kong February 2016 Page 63 of 63 Hong Kong 11/F, Hong Kong Club Building 3A Chater Road Central, Hong Kong T: +852 2848 6300 F: +852 2848 6333 Singapore 80 Raffles Place #44-01 UOB Plaza 1 Singapore 048624 T: +65 6671 7400 F: +65 6671 7401 Dubai Office 1101, Conrad Tower Sheikh Zayed Road PO Box 212620 Dubai United Arab Emirates T +971 4 350 3600 F +971 4 350 3699 Sydney Level 22, 85 Castlereagh Street Sydney NSW 2000 Australia T: +61 2 8215 5999 F: +61 2 8215 5988 Auckland Level 6 70 Shortland Street PO Box 3158 Auckland 1140 New Zealand T: +64 9 379 9011 F: +64 9 379 9025 For further details and for full profiles, please see our website:www.kennedyslaw.com Kennedys worldwide (including associated offices and cooperations): Argentina, Australia, Belgium, Brazil, Chile, China, Colombia, Denmark, France, Hong Kong, India, Ireland, Mexico, New Zealand, Norway, Pakistan, Poland, Portugal, Russian Federation, Singapore, Spain, Sweden, United Arab Emirates, United Kingdom, United States (for US, Latin America and the Caribbean) This publication is for information purposes only and should not be relied on as providing legal advice. 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