Assessment of Insurance Core Principles
A. Introduction and Scope
1. This paper provides an assessment of significant regulatory and supervisory practices in the insurance sector of Thailand. The assessment was conducted by Charles Michael Grist, Financial Sector Consultant, the World Bank Group, and A. Thomas Finnell, Financial Sector Consultant to the International Monetary Fund, from February 6 until February 22, 2019. The last review of the Thai insurance sector was conducted as part of an April 2008 Financial Sector Assessment Program Review (FSAP), but this review did not include a detailed assessment against the ICPs issued by the International Association of Insurance Supervisors (IAIS).
2. The current assessment is benchmarked against the ICPs issued by the IAIS in October 2011, including revisions authorized up until December 2017. The assessment was undertaken as part of the FSAP conducted by the International Monetary Fund and World Bank. The ICPs apply to all insurers, whether private or government controlled. Specific principles apply to the supervision of intermediaries. The institutional arrangements for financial sector regulation and supervision are outlined in Section C.
B. Information and Methodology Used for Assessment
3. The level of observance for each ICP reflects the assessment against its standards. Each ICP is rated in terms of the level of observance as follows:
- Observed: where all the standards are observed except for those that are considered not applicable. For a standard to be considered observed, the supervisor must have the legal authority to perform its tasks and exercise this authority to a satisfactory level.
- Largely observed: where only minor shortcomings exist, which do not raise any concerns about the authorities’ ability to achieve full observance.
- Partly observed: where, despite progress, the shortcomings are sufficient to raise doubts about the authorities’ ability to achieve observance.
- Not observed: where no substantive progress toward observance has been achieved.
4. The assessment is based solely on the laws, regulations, and other supervisory practices in place in February 2019. While the assessment does not reflect ongoing regulatory initiatives, some key proposals are discussed by way of additional comments in this report. The authorities have provided a self-assessment, supported by examples of actual supervisory practices and assessments, related to entities (the identities of which have not been disclosed) which enhanced the robustness of the assessment. Technical discussions with, and briefings by, officials from the Thai authorities have also enriched discussions of this report as did discussions with some industry participants. The assessors did not meet with any consumer groups.
5. The assessors are grateful to the authorities for the hospitality, cooperation and thoughtful logistical arrangements, particularly the helpful coordination of various meetings with industry stakeholders. The assessors are also grateful for the valuable inputs and insightful views received from insurers, professional associations, and other industry participants received during the course of their work.
C. Overview—Institutional and Macroprudential Setting
Institutional framework and arrangements:
6. Financial sector regulation in Thailand is dependent on three main supervisory authorities, each with its own sector specific legislation. Insurance is the responsibility of the OIC. Banking is supervised by the Bank of Thailand (BOT), Securities is regulated by the Securities and Exchange Commission (SEC) as are provident funds. These authorities operate with considerable autonomy and there is cooperation and some overlap in powers and responsibilities with respect to financial groups and financial stability issues.
7. The OIC is within a portfolio of agencies reporting to the Minister of Finance. It is led by a Board of Directors which includes the Permanent Secretaries for Finance and Commerce, the Secretary-General of the Consumer Protection Board, the Governor of the Bank of Thailand, the Secretary-General of the SEC and the Secretary-General of the OIC who serves as its Secretary, and the OICs Chief Executive Officer. The Board also has at least six (and not more than eight) other members who are appointed based on their professional backgrounds ((law, accountancy, business administration, finance, economics, and/or insurance).
8. The OIC became an independent authority with the passage of the ICA in 2007. As previously mentioned, the Secretary General is its Chief Executive and supervises day to day insurance business through authorities and requirements established under the Civil and Commercial Code, the Life Insurance Act 1992 (LIA) and Non-Life Insurance Act 1992 (NLIA), (including amendments and subordinate legislation up until 2018), and in accordance with policies or regulations laid down by Insurance Commission as defined under section 6, 12, 17, and 20 of Insurance Commission Act 2007.
9. The OIC is financed by levies on the sector it regulates. These are approved by the Minister and Cabinet.
10. A chart outlining the structure of the OIC is provided below (Figure 1):
Figure 1.Summary of the Organizational Structure of the OIC
11. In January 2019, the OIC had a staff of 575, of which 389 are at the central office in Bangkok and 186 are in regional offices). Staff are deployed across the following divisions:
- General Administration Group (i.e., budget, finance, and accounting): 48 officers.
- Examination Group: 33 officers.
- Insurance Business Analysis Group (i.e., offsite analysis, strategic development responsibilities): 27 officers.
- Insurance Intermediary Examination Group: 27 officers.
- Supervisory Standard Development Group (i.e., capital and solvency standards, system stability, corporate governance standards, business operation standards): 16 officers.
- Insurance Products Supervision Group: 35 officers.
- Investment Business Supervision Group: 14 officers.
- Strategic Organization Group (i.e., Risk Management, Corporate Communications, International Affairs and Policy, Information Technology and Communication): 41 officers.
- Regional Insurance Group (intermediary examination and licensing, local complaints handling, payment of compensation under the Protection of Motor Vehicle Accident Victims Act and developing insurance literacy): 199 officers.
- Legal and Litigation Group:23 officers.
- Policyholder Protection Group (i.e., complaint handling, call center, dispute settlement): 34 officers.
- Office of Secretary General Group: 60 officers:
- o Secretary general’s office
- o Senior insurance Experts
- o Internal Audit Department
- o Human Resource Department
- o OIC Advanced Insurance Institute
- o Motor Vehicle Accident Victims Protection Department
Industry Structure and Recent Trends:
12. The Thai insurance industry is a relatively small but growing part of the country’s financial services sector (Figure 2). Insurance sector assets have grown from 10 percent of GDP in 2006 to over 22 percent of GDP in 2016, constituting 9 percent of total financial sector assets. Similarly, between 2008 and 2017, gross premiums written have grown at an average annual rate of approximately 16.9 percent, substantially above nominal GDP growth of 9.9 percent during the same period. As a result, the insurance penetration ratio (the ratio of premiums written to GDP) has gradually increased from 3.63 percent in 2008 to 5.39 percent in 2017.
Figure 2.Insurance Premiums Written 2008–2017
Source: Axso Global Statistics and OIC.
13. Insurance penetration is high by regional standards, fueled by growing per capita income, and expectations of longer term economic growth (Table 1). Thailand is the world’s 29th largest insurance market.1 Insurance penetration is below that seen in higher income Singapore (8.75 percent) but higher than most other countries in the region including Malaysia, Indonesia, and Vietnam. It is also higher than many countries with similar per capita income like Columbia (2.87 percent), Peru (1.62 percent), and Ecuador (1.99 percent).
|Life||Non-Life||Personal Accident and Health||Total|
|Percent||Per Capita*||Percent||Per Capita*||Percent||Per Capita*||Percent||Per Capita*|
14. The Thai market is dominated by the life sector which accounts for approximately 73 percent of net premiums written (Table 2). Approximately 72 percent of this total is made up of individual policies—largely endowment polices encouraged by government tax incentives (Figure 3). A further 20 percent are group policies, largely associated with employee benefit packages of employers. Personal accident and sickness policies may be written by either life of non-life insurers, but these policies currently account for only one percent of premiums written by life insurers and are written as riders on other products. All other forms of life insurance account for approximately seven percent of life insurance premiums written.
|Life||Non-Life||Personal Accident and Healthcare||Total|
|Premium (in THB mn).||597,321.56||181,139.83||43,547.92||822,009.31|
|Percent of the total market||72.67||22.03||5.30||100.00|Figure 3.Thailand Insurance Market Composition by Product
15. The non-life sector accounts for approximately 22 percent of premiums written. The largest portion of this business is voluntary motor insurance policies which account for roughly 50 percent of the total. Property insurance accounts for a further 16 percent of the market and compulsory motor insurance makes up a further 8 percent. All other types of non-life policies make up approximately 26 percent of the market including personal accident and sickness policies written by non-life insurers (eighteen percent of premiums written), marine aviation and transit (approximately two percent of non-life premiums written), liability insurance (approximately 1 percent of premiums written) and all other classes (approximately 5 percent of premiums written).
16. There were a total of 82 authorized insurers including six foreign branch insurers operating in Thailand at the end of December, 2018.2 They include 58 non-life insurers, 22 life and pension insurers, and 2 locally established reinsurance companies. Market participants must either be locally established public companies or branches of foreign insurers. Less than 2 percent of gross premiums written is written outside the country. Separate entities are required for life and non-life business. The number of insurers has gradually decreased from 90 in 2013. The two reinsurance companies write non-life and life business but life reinsurance accounts for only a small fraction of gross premiums written in the market.
17. International participation in the industry is restricted. There are currently six foreign branches licensed to operate in Thailand, but no new branches have been licensed in several years. In practice, a moratorium on new licenses (domestic and foreign) has been in place for over 20 years (although there is no official policy on this matter), the rationale being that there were many insurers in Thailand. However, new players could still enter the Thai insurance industry through a joint investment in an existing insurance company. Section 10 of the LIA and Section 9 of the NLIA require that Thai nationals hold at least 75 percent of the total number of a public limited company insurer’s voting shares and three quarters of the company’s directors must be Thai nationals.
18. In cases where the Commission deems it appropriate, the Commission may permit persons of non-Thai nationality to hold shares up to 49 percent of the total number of voting shares that have been sold, and permit persons of non-Thai nationality to serve as directors in a number exceeding 1/4, but less than 1/2, of the total number of directors. In the event that the company’s standing or operations are of a condition that might cause damage to the insured or the public, or for the purpose of strengthening the stability of any company or the stability of the life insurance business, the Minister, upon the recommendation of the Commission, is empowered to grant a waiver to permit the company to have shareholders or directors other than as specified above. The application for, and the granting of, such permissions must be in accordance with the regulations, procedures, and conditions or time limits prescribed by the Commission or the Minister. In 2012, AXA was granted permission to hold a 100 percent shareholding of AXA insurance public Co., Ltd.
19. At present, approximately 25 percent of total industry assets are foreign owned. This has decreased from approximately 31 percent in 2013. In total, there are 34 insurance companies which have some international participation and are part of international insurance groups: 11 life insurance companies and 23 non-life insurance companies. Approximately 23 insurance companies have equity links to banking groups and non-financial conglomerates.
20. Insurance market concentration is low. The Herfindahl-Hirschman Index of market concentration is less than 1400 for the life industry indicating an unconcentrated industry while the index for the non-life industry is less than 200 indicating a highly competitive industry. The largest market share of any participant for the life industry was 26 percent while that of the non-life industry was 8 percent.
21. Insurance policies are distributed mainly through licensed brokers and agents but bancassurance is also a major distribution channel. In non-life business, brokers are the largest distribution channel accounting for more than 55 percent of non-life business. Agents are also active in motor, personal accident and small commercial lines and account for roughly 16 percent of business written while bancassurance accounts for roughly 13 percent. Life market distribution is dominated by agency and bancassurance channels which account for more than 94 percent of direct premium written. Internet and other distribution channels (mainly telephone based) are currently small (less than 7 percent of direct premiums written) but internet-based sales are starting to grow rapidly.
22. The market includes several insurance products that are compulsory for consumers. Compliance with compulsory insurance requirements for some compulsory products is not said to be a significant issue (Table 3).
|Motor third party liability for bodily injury||Workers Compensation (state scheme).|
|Worksite Inspectors’ Liability||Personal Accident Insurance for Boat Passengers.|
|Fire and Explosion Liability for Operators of Fuel Oil and Gas Facilities||Insurance for Damage to Hire-Out Jet-Skis|
|Shipowners Liability Against Marine Oils Pollution||Liability Insurance for the Transport of Hazardous Substances|
|Liability Insurance for Unmanned Aircraft (Drones)||Aviation Liability|
23. International financial reporting standards and an independent audit function and actuarial involvement are observed in Thailand. The Federation of Accounting Professions (FAP) is authorized to develop accounting standards in Thailand under the supervision of the Accounting Profession Supervision Committee, and has generally adopted all International Financial Reporting Standards (IFRS) with a one-year delay from the equivalent IFRS Standard’s effective date. Thai Financial Reporting Standards (TFRS), and are aligned with the 2016 version of IFRS. The TFRS approach to the valuation of assets and liabilities implies a risk-adjusted present value approach to both assets and liabilities, assuming a going-concern basis.
24. TFRS have been adopted by all insurers in Thailand. Currently, Thai insurers are preparing to adopt IFRS 9, Financial Instruments, that will be effective in 2020. FAP is in the process of issuing a guideline for insurance companies who elect to further defer the implementation of IFRS 9 until IFRS 17, Insurance Contracts, becomes effective in Thailand, tentatively, in 2023.
25. The financial statements of Thai insurance companies have to be reviewed or audited by a Certified Public Accountant who must comply with Thai Auditing standards. The FAP prescribes Thai Auditing standards, closely following international auditing standards. Independent auditors of Thai insurance companies must be licensed. Licensing requirements include training in the insurance business, IFRS, international auditing standards, corporate governance, risk management, and internal controls. Independent auditors must use actuaries to review the technical accounts and reserves of the insurance companies they audit. The FAP, under the oversight of Accounting Professions Regulatory Commission, is responsible for regulating the audit profession. In addition, the Central Bank of Thailand requires that auditors of all financial institutions must be those approved by the SEC as auditors in the capital market.
26. A licensed actuary is required to certify the valuation of liability annually on both a gross and net of reinsurance basis. The license is issued by OIC and must be renewed every two years. The qualification of a licensed actuary for non-life business includes either being a fellow of the Society of Actuaries of Thailand or having graduated from an Office of Civil Services Commission-approved university and have at least five years of reserving experience. Life actuaries are required to be a fellow of the Society of Actuaries of Thailand. Both life and non-life actuaries must comply with an OIC code of conduct and standard practice that is suitable for the practice area; violation of the standard or code of conduct will result in suspension or revocation of the license. The OIC consistently assesses the appropriateness of experts involved in asset and liability valuation. The majority of actuaries practicing in Thailand maintain a fellowship in internationally-recognized actuarial societies such as the Society of Actuaries in the U.S., the Institute of Actuaries of Australia (IAA), the Institute and Faculty of Actuaries (IFoA) (U.K.) or the CAS in the U.S.
Operating Performance, Assets and Liabilities, and Solvency Position
27. The life insurance industry enjoyed high profitability in recent years with return on equity (ROE) in the 10.5 to 12.9 percent range. While the loss ratio and expense ratio have been stable, investment returns have recently decreased (Table 4).
28. The non-life business has also been profitable, but profitability has steadily declined since a hard market in 2013. In 2017 ROE was approximately 7.4 percent and has largely been impacted by the direction of motor insurance business. In 2018, it is estimated that ROE will further decline due to an intensely competitive market while the premium volume is expected to grow along with the growth of automobile sales.
29. Reinsurance business was significantly impacted by catastrophic flood losses in 2011 which impacted on profitability until 2013. In recent years however, profitability has significantly improved.
Assets and Liabilities
30. Insurance sector assets grew by approximately 56.4 percent between 2013 and the end of 2017. All of this growth is attributable to growth in the life insurance sector, which was partially offset by declines in the non-life and the reinsurance sectors. The growth largely reflects general premium and capital growth in the life sector.
31. The investment profile for life insurers appears to be conservative and strongly weighted towards government securities. Government securities account for approximately 66 percent of life insurer assets. The composition of investments between major classes also appears to have been relatively constant over the last five years. In the non-life insurance sector, investments in corporate securities and equities appear to be heavier than in many other asset classes and accounted for 43.6 percent of investments in 2017. Over the five-year period equities reported for the Thai non-life sector increased by 75 percent, comparable to growth in market indices; over the same period, non-life premium volume was flat, indicating that such equity growth is not resulting in over-leveraging of premium (Table 5).
|Cash and bank balances||56.03||81.65||72.28||59.22||45.22|
|Investments supporting unit linked||N/A||N/A||N/A||12.57||26.45|
|Liabilities & Equity||1,902.90||2,301.20||2,580.79||2,895.93||3,316.46|
|Accumulated retained earnings||334.46||394.61||279.08||260.04||225.45|
|Cash and bank balances||87.44||106.00||98.89||87.23||91.74|
|Liabilities & Equity||483.91||456.89||447.32||451.60||449.80|
|Accumulated retained earnings||(54.43)||(33.83)||(25.61)||(19.58)||(14.07)|
|Cash and bank balances||5.90||3.00||2.55||2.20||1.40|
|Liabilities & Equity||29.50||16.17||15.09||14.64||13.37|
|Accumulated retained earnings||(3.95)||(5.26)||0.87||(0.30)||0.72|
32. For the life sector in Thailand, the solvency position of the industry has remained reasonably constant over the last three years after a small decline between 2014 and 2015 (Table 6). The position of the non-life sector has also remained fairly constant over the last four years after a significant decline in 2014. The average capital ratio of both the life and non-life sectors remains substantially above the minimum capital requirement. At the time of this report only one small non-life insurer has fallen below the Total Capital Required (TCR). In previous years the number of insurers who have fallen below the TCR ranges from one to three. In these circumstances their licenses were revoked.
|Average Capital Ratio (CAR)||391.30||410.00||379.01||344.23||344.19||353.47|
|Average Capital Ratio (CAR)||400.50||222.99||311.41||312.32||319.90||313.96|
Risks and Vulnerabilities
33. The continued growth and stability of the insurance sector is dependent on continued economic growth and stability of the region, and the broader financial sector. While economic growth is expected to continue in the range of 2–3 percent per annum, economic or political shocks could have significant impacts on these expectations. The authorities are aware of these issues and are working to maintain a stable environment.
34. Thailand’s life insurance industry faces a number of challenges. Thailand’s aging population impacts on the sale of traditional products. There are strategic, operational and conduct of business risks that must be managed in the development of new products. Seniors accounted for about 14.2 percent of the national population in 2015 and are expected to grow to more than 25 percent by 2023. Another continuing challenge for Thailand’s life industry is the ability of insurers to match long duration insurance liabilities with investment instruments in local markets.
35. The low interest rate environment also presents challenges for life insurance. Thailand, like many jurisdictions, has seen interest rates decline to levels below what was assumed when many long-term guaranteed policies were issued. Bancassurance has been a major driver of premium growth in the past decade, and most of the life insurance products sold through that channel have been guaranteed endowment products, which remain popular in Thailand. Life insurers could not perfectly match the duration of their assets and liabilities, which causes volatility in earnings, capital requirements, and capital resources. Thai life insurers, especially those with guaranteed products in their portfolio, aim to prospectively offer less guaranteed benefits and focus instead on life protection, health protection, and unit-linked products to shift investment risks to policyholders.
36. The Thai non-life insurance market is intensely competitive and there are a large number of insurers for the size of market. There is a risk that fierce competition among insurers on price, rather than on quality of service, could result in the erosion of underwriting discipline and could create solvency problems. This is particularly true for smaller insurers. Further industry consolidation may help mitigate these pressures. The exposure to natural disasters and catastrophic loss in the region is also an important challenge for the non-life insurance sector and part of insurer risk management requirements.
D. Preconditions for Effective Insurance Supervision
Sound and Sustainable Macroeconomic and Financial Sector Policies
37. Thailand was ranked 32nd in global competitiveness by the World Economic Forum (WEF). Some of the positive factors discussed in the WEF assessment included the quality of the macroeconomic environment, health and primary education, and market size. The top challenges indicated by the forum were some inefficient institutions and lack of innovation.
38. Thailand’s economy is increasingly driven by its industry and service sectors. The economy was traditionally based on agricultural exports but in recent decades it has been transformed into one of the most diverse in south-east Asia. Tourism dominates the services sector. Foreign direct investment averaged 2.1 percent of GDP between 2011 and 2015. Following a contraction in 2009, the Thai economy has been driven by exports and tourism. GDP growth is currently in the 3 percent range.
39. Over the past decade, Thailand’s financial sector landscape has become more complex and interconnected, with an increased number of service providers and more variety of financial transactions. The BOT has conducted monetary policy under a flexible inflation targeting framework since May 2000. Under this framework, the BOT pays attention not only to ensuring price stability through setting an inflation target (so-called “monetary policy target”), but also to preserving economic growth and financial stability.
40. The BOT in cooperation with the Ministry of Finance (MOF) has also set goals and strategic direction for financial sector development through a series of Financial Sector Master Plans (FSMP). The FSMP I (2004–2008) focused on rationalizing the structure of the financial institutions system in order to enhance efficiency and stability. FSMP II (2010–2014) aimed to increase efficiency and competitiveness of the financial institutions system as well as promote financial access and enhance financial infrastructure, especially financial institutions’ risk management. The vision of the FSMP (2016–2020) III is to promote a competitive Thai financial system which can support more diverse needs at fair and undistorted prices, promote regional trade and investment, with supervision to ensure macroeconomic and financial stability. In the insurance sector, the OIC has established an Insurance Development Plan, which consists of insurance supervisory and developmental policies that are consistent with this direction.
Thailand’s Legal System
41. Thailand’s system of laws and the court system are well developed. The system of laws is a blend of Thai civil and commercial law, influenced by English common law and statutes and also by practice in continental Europe, especially Germany and Switzerland. The civil law system is codified and the Civil and Commercial Code is the most important of the four legal codes insofar as civil matters are concerned. The legal relationship, including liability in respect of non-marine and life insurance, is governed by the provisions of the code, while marine insurance tends to be governed by the British Marine Insurance Act 1906, in the absence of more specific legislation.
42. The Constitution is the supreme law from which the authority of other laws emanates. No law or regulations can contradict the principles laid down in the Constitution. Other types of legislation include Codes of law, Acts, Statutes or Emergency Decrees or Royal Proclamations. Of particular importance to the insurance sector are the LIA and NLIA which lay down the supervision of insurance industry and the ICA which empowers the Insurance Commission and the OIC to supervise the insurance Industry.
43. Ministerial Regulation/Orders are subordinate legislation issued under the Acts. Subordinate law is passed by the Cabinet. The OIC also has Insurance Commission Notifications which are subordinate legislation issued under the Life and Non-Life Insurance Acts but passed by the Insurance Commission instead of the Cabinet. The enactment of such subordinate legislations must be in accordance with the authority and scope prescribed in the Acts.
44. While Thailand’s system of laws is well developed, the court system is not easily accessible to individual insurance consumers. Court costs and legal fees are high relative to the incomes of many consumers and Thai consumers are generally not litigious. Most disputes are settled out of court. Court judgements do not include pain and suffering and are low by European or North American standards. They are also said to be low compared to standards in Malaysia or Singapore. The OIC has alternative dispute settlement resolution mechanisms to ensure that rights of the policyholders are protected and give policyholders no cost options of settling disputes with insurance companies.
Accounting, Auditing, and Actuarial Standards
45. As previously mentioned, Thai Financial Reporting Standards are very similar to IFRS for the insurance sector. Independent auditors for insurance companies must be licensed. Licensing requirements appear to be rigorous and require auditors to have training in insurance business, IFRS, international auditing standards, corporate governance, risk management and internal controls, etc. Independent Auditors must use actuaries to review the technical accounts and reserves of companies. Thai Auditing standards closely follow international auditing standards.
46. Thailand has a growing actuarial community. There are approximately 120 actuaries currently licensed and there is also a well-established Society of Actuaries of Thailand (SOAT). OIC requires actuaries to be licensed and perform their duty in a professional manner. There is a code of ethics and non-compliance or misconduct can result in license suspension or revocation. The actuarial professional body in Thailand is the SOAT, which is a full member of the International Actuarial Association. SOAT provides professional seminars and workshops relevant to actuarial work. A member of SOAT must comply with the Code of Conduct and Thai Standard of Actuarial Practice which are consistent with the International Actuarial Association code of conduct and standards of actuarial practice.
Mechanisms for Consumer Protection
47. Although there is no insurance ombudsman in Thailand, the OIC can arbitrate any dispute between the public and insurers and has imposed a requirement that all insurance policies must contain an option (binding on the insurer) for arbitration of claims under the OIC’s rules. The decisions of the OIC are binding on the insurer but are not binding on the policyholder. The arbitration process exists as a quick and economical way of settling contractual disputes, with cases expected to be settled within 90 days. The Thai General Insurance Association (TGIA) also runs an arbitration office, the primary objective of which is to reduce the number of disputes between insurers and their clients where the amounts involved are relatively modest and recourse to the courts would be a costly option. The arbitrators are four retired criminal and appeal court judges. Almost all cases handled by the arbitration office relate to motor insurance.
48. Thailand has two policyholder protection funds to protect policyholders in the event of insurer insolvency. Under Chapter V of the NLIA, a “protected fund,” or policyholders’ protection fund, is financed by a 0.1 percent levy on the gross written premium for each company. The OIC has issued guidelines outlining the rules, procedures and conditions for creditors seeking to obtain payments from the fund. Each creditor has the right of repayment from the non-life fund and the amount repaid, together with the insurer’s reserves deposited with the OIC, must not exceed the amount due under the policy. The total repayment amount to any single claimant for all non-life insurance policies with the same insurance company is limited to THB 1 million (US$31,299). Similarly, in 2008 an amendment to Chapter 5 of the LIA established a policyholder protection fund for life insurance companies. Neither fund is guaranteed by the state. The OIC is also responsible for the administration of the Protection of Motor Vehicle Accident Victims Act, which is administered through its offices around the country and has a separate fund for compensation.
Efficient Financial Markets
49. Thailand has a Stock Exchange and Bond Market contributing to efficient allocation of capital. The Stock Exchange of Thailand was incorporated under the Securities Exchange of Thailand Act, B.E. 2517 (1974). Operations started on April 30, 1975. As of December 31, 2018, there were 545 companies listed on the SET and 159 companies on the Market for Alternative Investment (MAI), with a total market capitalization for common stocks of THB 16.22 trillion. There are 2 bond markets, which are the Thai Bond Market Association (ThaiBMA) and the Thailand Bond Exchange, with a total market size of THB 12.58 trillion. They offer domestic sovereign bonds for institutional investors, fixed interest securities, including BOT bonds, debentures, treasury bills and corporate bonds, with maturities of up to 50 years.
50. Table 7 summarizes the observance of the ICPs arising from this assessment.
|Insurance Core Principle||Level||Overall Comments|
|1. Objectives, Powers, and Responsibilities of the Supervisor||LO||The OIC is the authority responsible for insurance supervision and is clearly defined in primary legislation. The operations of the OIC appear to be broadly focused on the maintenance of a fair, safe, and stable insurance sector for the benefit and protection of policyholders.|
Under current legislation, however, several key supervisory powers under the legislation, like the power to approve licensing decisions, rest with the Minister and/or Cabinet rather than the supervisory authority. Establishing these powers with the Minister rather than the supervisor creates a risk that the supervisor may not have adequate powers that can be used in a timely manner to achieve the objectives of supervision.
|2. Supervisor||LO||While many of the ICP standards are fully addressed, the independence and transparency of the supervisory organization can be improved and should be made more consistent with international standards.|
|3. Information Exchange and Confidentiality Requirements||O||The supervisor has the necessary legislative authority and demonstrates the ICP standards in its supervisory practice.|
|4. Licensing||PO||Partly observed is based on the observation that licensing criteria need to be updated and applied across all industry applicants.|
For example, consideration of corporate or group structure does not currently appear to be part of licensing requirements. Consideration should be given to proposed governance structure, risk management and internal control functions of all licence applicants at the licensing stage and identification and suitability assessment of controlling beneficiaries should be part of the licencing process.
The OIC is aware of the licensing deficiencies and is working to make appropriate changes to insure consistency with international standards.
|5. Suitability of Persons||PO||Partly observed is based on the observation that requirements for significant owners and, in particular, for all real person controlling beneficiaries of insurers should be strengthened, particularly with respect to identifying these individuals and assessing their integrity and financial resources.|
Consideration should be given to developing more specific competency requirements for people in control functions (e.g., risk management).
|6. Changes in Control and Portfolio Transfers||PO||Partly Observed is based on the following observations:|
|7. Corporate Governance||O||Corporate governance requirements for insurers have been strengthened and appear to be consistent with the requirements of the ICP.|
|8. Risk Management and Internal Controls||O||Internal control requirements for insurers have been strengthened and appear to be consistent with the requirements of the ICP.|
|9. Supervisory Review and Reporting||LO||The OIC has made significant progress in developing and implementing a good supervisory framework for insurers. The largely observed rating is based on the observations some of the current framework is new (post 2016) and has not been tested by a full onsite cycle with all institutions.|
|10. Preventive and Corrective Measures||LO||Largely Observed is based on the observation that the ladder of intervention appears to leave the use of the OIC’s strongest preventative and corrective powers until an insurers financial condition is extremely serious and when the supervisor should be focused on its orderly wind-up as a gone concern rather than its recovery.|
|11. Enforcement||LO||The OIC’s ability to enforce corrective action should be enhanced by strengthening its enforcement powers to take control of non-life insurers and increase the supervisor’s enforcement powers over intermediaries|
|12. Winding-up and Exit from the Market||LO||Largely Observed is based on the observation that the legislation does not specify a clear point at which it is no longer permissible for an insurer to continue its business. These concerns are partially mitigated by the strong supervisory practice of the OIC with respect to capital and the existence of policyholder protection funds.|
|13. Reinsurance and Other Forms of Risk Transfer||O||While the assessment observes compliance with the ICP principal statements, it is noted that assuring amounts recoverable from large foreign-based reinsurers without a physical presence in Thailand could be challenging should a domestic insurer become insolvent.|
|14. Valuation||O||The notifications on valuation provide requirements for the measurement of assets and liabilities but could in some respects be clearer.|
|15. Investment||O||No comments.|
|16. Enterprise Risk Management (ERM) for Solvency Purposes||LO||The expanded notifications on ERM and Own Risk and Solvency Assessment (ORSA) were only recently adopted in January 2019. While insurers have some prior experiences and training with aspects of those notifications, including ORSA, ORSA is nonetheless a key new requirement for which insurers and the OIC will benefit from experience going forward. Reporting on ORSA by insurers won’t begin until 2020. The notification is largely principles-based, and variations in compliance and the granularity and quality of reporting can be expected across insurers.|
The new information that will be soon be reported to the OIC resulting from the new notifications on ERM/ORSA presents an onus for the OIC to identify deficiencies, but also an opportunity to highlight best practices.
|17. Capital Adequacy||LO||The Thai solvency regime uses RBC as a standard method for all insurers to determine and report to the OIC and to the public on capital adequacy. Currently, RBC excludes provisions for operational and catastrophe risks.|
|18. Intermediaries||LO||Largely Observed is based on the observation that many of the Conduct of Business (COB) requirements for intermediaries are new and have not yet been fully tested in the market, and supervisory programs for brokers, agents and insurers are still evolving.|
|19. Conduct of Business||LO||Largely Observed is based on the following observations:|
|20. Public Disclosure||LO||The notifications on disclosure are recently enacted (2018).|
The notifications do not explicitly require certain disclosures that are contained in the ICP 20 principles. For example, the notifications do not explicitly require reporting of information concerning the level of sensitivity to market variables associated with disclosed amounts; the methodology used and the key assumptions employed in measuring assets and liabilities for asset liability management (ALM) purposes and any capital and/or provisions held as a consequence of a mismatch between assets and liabilities; financial performance by segment; or information about the nature, scale, and complexity of risks arising from insurance contracts.
While the ICP calls for disclosure of insurance risks (which can include underwriting, pricing, lapse, and expense risks), the notifications require disclosure only of underwriting risks. However, it is noted that required disclosures of such risks in audited financial statements are more comprehensively stated.
|21. Countering Fraud in Insurance||LO||The new notifications on fraud (2018) have only recently been enacted and do not go into force until mid-2019. The Life Insurance Act was also recently amended in February 2019 to increase penalties and sanctions and does not take effect until August 2019.|
The 2018 notifications do not require that frauds or acts with a material impact on the financial position, performance or reputation of an insurer be reported by an insurer to the OIC, if the company has rectified the matter within a timeframe deemed appropriate by the audit committee.
|22. Anti-Money Laundering and Combating the Financing of Terrorism||O||No comments.|
|23. Group-wide Supervision||O||The OIC does not serve in the capacity of a group-wide supervisor for any groups. As an involved supervisor it cooperates and coordinates with the BOT as the group-wide supervisor of Thailand-domiciled financial conglomerates, and with insurance supervisors in other jurisdictions who serve as group-wide supervisors for groups operating on a cross-border basis in Thailand through investment in local insurers or through branches.|
|24. Macroprudential Surveillance and Insurance Supervision||O||No comments.|
|25. Supervisory Cooperation and Coordination||O||No comments.|
|26. Cross-border Cooperation and Coordination on Crisis Management||PO||The OIC does not formally participate in all supervisory colleges or, where applicable, of crisis management groups, of foreign-based groups operating in Thailand, due in part to the relatively small share of the domestic business of some groups relative to the group on a consolidated basis.|
For firms operating in Thailand on a cross-border basis, contingency plans are not required as a matter of course, but they may be required on an ad hoc basis by the OIC in light of events or emerging risks.
Certain aspects covered by the ICP principles, e.g., for the supervisor to share certain information with other relevant supervisors, are not covered by a specific local requirement (although, as a practical matter, may be handled by the OIC in the course of inter-supervisor communications including through colleges. Such information includes about group structure (including legal, financial, and operational intragroup dependencies); interlinkages between the insurer and the financial system in each jurisdiction where it operates; and potential impediments to a coordinated solution.
51. Table 8 provides a summary of the level of observance.
|Largely Observed (LO)||12|
|Partly Observed (PO)||4|
|Not Observed (NO)||0|
52. Table 9 lists the suggested steps for improvement of the level of observance. Some of these actions reflect actions that are already in progress but yet to be fully operational.
|Insurance Core Principle||Recommendations|
|1. Objectives, Powers, and Responsibilities of the Supervisor||It is recommended that the authorities amend the primary legislation at their next opportunity to vest greater power for key supervisory decisions with the OIC. In particular, consideration should be given to transferring each of those powers that are currently vested in the MOF to the OIC directly.|
|2. Supervisor||It is recommended that the government and OIC consider:|
It is also recommended that in order to more fully meet the requirements of ICP 2.7, the OIC should also consider publishing more information on the insurance sector that it regulates in its annual report and elsewhere.
|3. Information Exchange and Confidentiality Requirements||No recommendation.|
|4. Licensing||It is recommended that OIC continue with its review of licensing requirements and introduce appropriate changes to legislation at its earliest opportunity.|
|5. Suitability of Persons||It is recommended that:|
|6. Changes in Control and Portfolio Transfers||It is recommended that the OIC review its control provisions in conjunction with the licensing and suitability requirements for significant owners and make legislative changes at its earliest opportunity.|
|7. Corporate Governance||As many of the Corporate governance requirements are principle based, it is recommended that the OIC closely monitor the application of these requirements by insurers over the next supervisory cycle.|
|8. Risk Management and Internal Controls||As many of the Risk Management and Internal control requirements are principle based, it is recommended that the OIC closely monitor the application of these requirements by insurers over the next supervisory cycle.|
|9. Supervisory Review and Reporting||It is recommended that the OIC consider:|
|10. Corrective and Preventative Action||It is recommended that OIC consider modifying the ladder of intervention to add an additional stage (Stage 5) focused on preparing for the orderly wind-up of the insurer as a gone concern.|
|11. Enforcement||It is recommended that:|
|12. Winding-up and Exit from the Market||It is recommended that:|
|13. Reinsurance and Other Forms of Risk Transfer||It is recommended that the OIC:|
|14. Valuation||It is recommended that:|
|15. Investment||No recommendation|
|16. Enterprise Risk Management for Solvency Purposes||It is recommended that:|
|17. Capital Adequacy||It is recommended that:|
|18. Intermediaries||It is recommended that:|
|19. Conduct of Business||It is recommended that the authorities:|
|20. Public Disclosure||It is recommended that:|
|21. Countering Fraud in Insurance||It is recommended that:|
|22. Anti-Money Laundering and Combating the Financing of Terrorism||No recommendation|
|23. Group-wide Supervision||No recommendation|
|24. Macroprudential Surveillance and Insurance Supervision||No recommendation|
|25. Supervisory Cooperation and Coordination||No recommendation.|
|26. Cross-border Cooperation and Coordination on Crisis Management||It is recommended that:|
Detailed Principle-by-Principle Assessment
|ICP 1||Objectives, Powers, and Responsibilities of the Supervisor|
The authority (or authorities) responsible for insurance supervision and the objectives of insurance supervision are clearly defined.
|Description||The OIC is the only authority responsible for regulation and supervision of the insurance sector. Authority to regulate and supervise insurance is established under the ICA, the LIA, and the NLIA (including amendments and subordinate legislation).|
Objectives of Supervision
The Thai primary legislation does not include a specific “objectives section” but the objective of supervision is described in the “remarks” section of the ICA:
“For the efficient supervision of the operation of insurance business and the protection of the rights of the insureds, it is expedient to have a versatile and independent insurance commission specifically in charge of regulating the insurance business. Therefore, this Act must be enacted.”
OIC legal counsel advise that it is a Thai legislative drafting convention that intentions and objectives of all legislation are provided in a “remarks section” at the end of each law (similar to a preamble section in laws in some other jurisdictions). It further advises that these “remarks” have force of law when they are interpreted by the courts.
In support of this position, they refer to Section 4 of the general provisions of the Thai Civil and Commercial Code:
“The law must be applied in all cases which come within the letter and spirit of any of its provisions. Where no provision is applicable, the case shall be decided by analogy to the provision most nearly applicable, and, in default of such provision, by the general principles of law.”
The Civil and Commercial Code includes several books or parts including: general principles, obligations, contract law, property law, family law and the law of succession. The sections relating to general principles are particularly significant because they are applied by the courts to laws outside the Civil and Commercial Code like the insurance law if necessary.
Under this general objective the OIC has four main strategic directions, which are stated in its website and annual report, and are viewed as being consistent with the objective of policyholder protection. These are to:
Section 12 of the ICA establishes a broad range of general powers and responsibilities for the OIC to help it to carry out its strategic direction. These include the power and duty to:
OIC regularly reviews laws, regulations, and other regulatory requirements and proposes amendments. At a minimum, pursuant to the Royal Decree on Legislation Review, 2014, OIC has a duty to review laws, rules and regulations under its responsibility for every 5 years.
|Comments||The authority responsible for insurance supervision (the OIC) is clearly defined in primary legislation. The operations of the OIC appear to be broadly focused on the maintenance of a fair, safe, and stable insurance sector for the benefit and protection of policyholders.|
Under current legislation, however, several key supervisory powers under the legislation, like the power to approve licensing decisions, rest with the Minister and/or Cabinet rather than the supervisory authority. Establishing these powers with the minister rather than the supervisor creates a risk that the supervisor may not have adequate powers that can be used in a timely manner to achieve the objectives of supervision. It is recommended that the authorities amend the primary legislation at their next opportunity to vest greater power for insurance supervision with the OIC. In particular, consideration should be given to transferring each of those powers that are currently vested in the MOF to the OIC directly.
The supervisor, in the exercise of its functions and powers:
|Description||OIC’s governance structure is defined under the ICA law and related regulations. The OIC is comprised of a Board of Commissioners and the OIC.|
The Board has the power to establish policies, that regulate, promote, and develop the undertaking of insurance business. The Board can form its own committees, and subcommittees for the furtherance of its work. These presently include an audit committee, and subcommittees on the insurance business plan, budgeting, nomination and remuneration, finance and property management, legal issues, and appeals and litigation. It also deals with appeals of administrative decisions made by the Secretary General and the OIC. The Commission convenes on a monthly basis; however, if there are any situations which require immediate decision, an ad-hoc meeting can be held.
The Board is comprised of two types of members: members appointed on the basis o their positions and members appointed on the basis of their qualifications. “Position members” include Permanent Secretary of the MOF (chair), the Permanent Secretary of the Ministry of Commerce, the Secretary-General of the Consumer Protection Board, the Governor of the BOT, and the Secretary-General of the Office of the SEC. The Secretary General of the OIC (see below) is also a member of the Commission and its Secretary. Board decisions are made on the basis of majority votes. The Board also regularly assesses its own performance.
Members appointed on the basis of their qualifications include at least six but no more than eight persons appointed by the Minister, with the approval of the Cabinet, and with backgrounds in law, accountancy, business administration, finance, economics, or insurance. No more than two persons in each field can be appointed.
The Office of the Commission, headed by the Secretary General, is responsible for the Commission’s administration. Its powers and responsibilities are described under Section 21 of the ICA and include:
Section 17 of the ICA describes the OIC as a state unit which is not a government organization or a state enterprise. This implies that the OIC has considerable independence from Government. The OIC reports to government through preparation of an annual report showing the achievements and obstacles in the operations of the Commission and the Office, and submits it to the Cabinet.
Section 45 of the ICA states that:
Appointment and Dismissal Procedures
As noted above, the ICA provides for the appointment of two types of Board members: There are five members who are appointed on the basis of their positions in other government organizations and between six and eight other members who are appointed by government for fixed terms on the basis of their qualifications.
Section 7 of the ICA requires that a “qualified” commission member must be a Thai national and meet general suitability and competency requirements. In addition, the member must not be:
The ICA does not include provisions for the removal of “position members” who are appointed and removed pursuant to provisions of laws governing their other responsibilities (e.g., the SEC law).
In regard to the Secretary General, appointment is made by the Minister on the recommendation of the Commission and with the approval of the Cabinet pursuant to Section 23 of the ICA. The term of appointment is four years. The salary of the Secretary General is determined by the Commission with the approval of the Minister.
The Secretary General is the OIC’s Chief Executive Officer. Section 32 of the ICA gives the Secretary-General the power to recruit, appoint, remunerate and discipline or dismiss most staff in accordance with regulations prescribed by the Commission; however, for appointment of certain positions (i.e., Deputy Secretary-General, senior management members, and internal auditors), prior approval must be obtained from the Commission.
The suitability and competency requirements for the position are very similar to those for “qualified “commission member appointments excluding the technical background requirements for “qualified” commission members. They are described in Section 25 and 26 of the ICA.
The Secretary General’s dismissal criteria are covered by Section 29 and include “inadequate or dishonest performance of duties, misconduct or lack of ability” under Section 29 (5). Dismissal under Section 29 (5) would be carried out by the Insurance Commission’s resolution, which would be publicly reported with the reasons for the dismissal.
Pursuant to Section 43 of the ICA, the main source of funding for the OIC are funds from a levy placed on the insurance companies. The contribution that must be remitted by an insurance company is at a rate announced by the Commission, with the approval of the Minister.
Transparency of Regulatory Requirements, Review, and Consultation
Regulatory requirements including laws, regulations, notifications, orders, and rules are published. OIC also uses published circulars and sector notices to ensure that regulated entities are aware of changes and supervisory expectations in the application of supervisory requirements. OIC consults with stakeholders on major regulatory changes during their development and shares draft regulations and supervisory manuals with stakeholders and the public through its website. Regulatory requirements are mainly reviewed on an ad hoc periodic basis when issues arise but, according to Royal Decree on Legislation Review, 2014, OIC has a duty to review law, rules and regulations under its responsibility for every five years.
Appeals of Supervisory Decisions
The insurance legislation provides for the appeal of administrative decisions by the Secretary General to the Commission. Commission decisions may be appealed under the Administrative Procedure Act, 1996. Appeal of an administrative decision does not generally stay the decision.
The grounds for appeal of commission decisions include that the decision was:
The Official Information Act, 1997 and OIC Rules on Confidentiality of Classified Information, which specify levels of confidentiality and security and disclosure procedures, establish requirements to protect confidential information. In addition, Clause 10 of the OIC Rules on Code of Conduct and Ethics of Personnel establishes a requirement that:
OIC has disciplined its staff in several cases all of which were related to fraudulent conduct.
Section 5 of the Act on Tortious Liability of Officials states that:
Code of Conduct and Conflict of Interest
OIC staff must perform their duty in accordance with OIC Rules on Code of Conduct and Ethics, 2014. Any misconduct will be subject to disciplinary action according to OIC Rules on Personnel, 2007. The Code includes provisions dealing with conflict of interest.
Adequacy of Resources and Outsourcing
OIC has a total of 575 staff as of January 2018. As mentioned above, the OIC is free to recruit staff within limits, rules, and procedures set by the Commission. Staff appear to be well organized, knowledgeable, and to adhere to high conduct standards.
In order to retain highly skilled, competent and experienced staff, OIC reviews its remuneration policy every three years according to OIC Rules on Payroll, 2016, so as to ensure that the compensation is competitive with the market. In addition, the OIC has set up 3-year strategic human resource plan for 2017–2019, in order to develop skills and experience of its staff and meet manpower shortage or skill differentials.
The OIC has a well-developed staffing plan focused at retaining necessary staff and ensuring they have adequate skills. In key supervisory programs, more than 60 percent of staff have at least 10 years experience. Many staff have received supervisory training through the Toronto Center, the Canadian Office of the Superintendent of Financial institutions and at the National Association of Insurance Commissioners in the United States. In addition, many department heads and key supervisory staff have relevant post graduate training in either Europe or North America. The OIC staff also includes several trained actuaries.
The OIC also has a technology development plan to enhance its supervision capability.
In total, the OIC has an annual budget of around THB 1.8 billion (around US$50 million) These financial resources appear to be very adequate to conduct effective supervision in Thailand.
With the exception of testing intermediaries for licensing purposes (see ICP 18.1), OIC has not outsourced any of its supervisory functions. However, the OIC can hire short-term specialists to support any of its functions or projects it considers it lacks the capability to fulfill.
|Comments||While many of the ICP standards are fully addressed, the independence and transparency of the supervisory organization can be improved and made more consistent with international standards by the following:|
In addition, in order to more fully meet the requirements of ICP 2.7, the OIC should also consider publishing more information on the insurance sector that it regulates in its annual report and elsewhere.
|ICP 3||Information Exchange and Confidentiality Requirements|
The supervisor exchanges information with other relevant supervisors and authorities subject to confidentiality, purpose and use requirements.
|Description||Authority to Obtain Information|
Section 48 of the LIA and Section 51 of the Non-life Insurance Act, 1992 give the Secretary General a broad-based authority to obtain information and examine the business activities and financial condition of an insurer. This authority includes the power to:
Section 48 (3) and Section 51 (3) also allows the OIC to obtain information from “persons concerned with the company’s business.” The OIC advises that this would include entities like holding companies or other companies in a corporate group or companies involved in outsourcing arrangements.
Authority to Exchange information
Pursuant to Section 20 (6) of the ICA, OIC has powers to make agreements and cooperate with domestic and overseas organizations in relation to any affairs associated with the operations of the Office.
The OIC has a supervisory college with the Thailand Security Exchange Commission and the Bank of Thailand to help supervise Thai financial groups and Thailand has entered into fourteen other Memorandums of understanding with other supervisory authorities.
The supervisor has the legal authority and power to exchange information subject to criteria for safeguarding information set out in the Official Information Act and the OIC Rules on Classification of Confidential Information. The existence of an agreement is not a prerequisite for exchanging information and the OIC has exchanged information with a number of authorities with whom it does not have agreements in place such as other ASEAN insurance supervisors.
The OIC appears to exchange information on a timely basis and does not require strict reciprocity to exchange information. It does, however, ensure the party receiving information is bound by confidentiality requirements and requires other supervisors to use information only for lawful supervisory purposes consistent with the original request. If the party receiving information wishes to pass on the information to another authority, approval of the originating authority is sought.
The OIC has not had to deal with a situation where the supervisor is legally compelled to provide confidential information. In such circumstances the OIC suggests that it would seek approval for the disclosure from the originating authority.
The OIC is not currently a signatory to the IAIS MMOU but is in the process of becoming a signatory and hopes to sign in the near future.
A legal entity which intends to engage in insurance activities must be licensed before it can operate within a jurisdiction. The requirements and procedures for licensing must be clear, objective and public, and be consistently applied.
|Description||Definitions, Prohibitions, and Authority|
Life insurance contract and non-life insurance contract are defined terms in the Civil and Commercial Code. Section 17 of the NLIA and Section 18 of the LIA require that no person shall act as an insurer by entering into an insurance contract with any person unless he or she is licensed to undertake insurance business.
The only permissible legal forms for insurers are public limited companies or branches of foreign insurers. Public limited companies must be established pursuant to Section 6 of the NLIA and Section 7 of the LIA. Foreign branches must be established pursuant to Section 7 of the NLIA and Section 8 of the LIA. The NLIA and the LIA also prohibit a life insurance company from engaging in non-life insurance business while a non-life insurance company is prohibited from engaging in the life insurance business (see Section 31 of the NLIA and Section 33of the LIA).
Similar requirements exist for insurance agents and brokers and these terms are defined in the NLIA and LIA in Section 5 of the Act (see ICP 18).
The responsibility for issuing insurer licenses lies with the MOF, with the approval of Cabinet. Although the authority belongs to MOF, the OIC’s recommendation on licensing decisions is a key factor for the approval process.
No new licenses for insurance companies have been issued since 1995. The government is currently reviewing licensing requirements with a view towards allowing increased foreign ownership and opening the market to potential new entrants as well as greater consistency with the ICPs.
Licensing Process and Licensing Criteria for insurers
As previously discussed, all insurer licenses are approved by the MOF, based on a recommendation from the OIC and the approval of Cabinet. Licensing requirements for public company insurers were last set out in the Notifications for Establishment of Public Limited Companies for the Operation of Life/ Non-life Insurance Business, 1995. Detailed requirements for new branch insurers are currently being specified as no new branches have been established in many years. The OIC is working on a new notification to allow for the licensing of foreign branch reinsurers as well as reviewing the detailed requirements for other insurers. The 1995 notification on public companies requires the following:
Both insurance company and branch licenses clearly state their scope and conditions can be attached to licenses. Life licenses allow all life products to be sold. Most non-life licenses allow the sale of all non-life products, but some are only permitted to sell health insurance products or reinsurance. All licensees and the scope of the licenses are published on the OIC website.
The OIC has the ability to consult with other supervisors on licensing decisions but, as no licenses have been issued in many years, has not had reason to consult. Insurance activities without a physical presence are not permitted in Thailand, with the exception of reinsurance and marine insurance.
At present, OIC is drafting a new regulation for non-life foreign branch insurers. The intent of the regulation is to ensure greater consistency with the requirements of ICP 4 and local business context.
|Comments||Partly observed is based on the observation that licensing criteria need to be updated and applied across all industry applicants.|
For example, consideration of corporate or group structure does not currently appear to be part of licensing requirements. Consideration should be given to proposed governance structure, risk management, and internal control functions of licence applicants at the licensing stage and identification and suitability assessment of controlling beneficiaries should be part of the licencing process. In addition, time frames for review of applications should be established.
The OIC is aware of deficiencies in this area and is working to make appropriate changes.
|ICP 5||Suitability of Persons|
The supervisor requires Board Members, Senior Management, Key Persons in Control Functions and Significant Owners of an insurer to be and remain suitable to fulfil their respective roles.
|Description||Section 35 of the LIA and Section 34 of the NLIA require the following persons to meet general suitability requirements described below:|
The OIC maintains a database on key positions and requires insurers to demonstrate ongoing suitability by monitoring activity and requiring insurers to provide an annual suitability self-assessment. It also requires changes to directors and foreign significant owners to receive prior approval and requires notification of changes to people in key control functions or significant owners.
The OIC has the power to Act when the Board members, Senior Management or key persons in control functions no longer meet suitability requirements. Usually such events are dealt with through discussion with the insurer and moral suasion, however, Section 54 of the LIA and Section 53 of the LIA give the OIC authority to remove directors or persons responsible for its operation in such circumstances.
The OIC has the ability to exchange information with other supervisors on suitability and regularly does so.
|Comments||Partly observed is based on the observation that:|
|ICP 6||Changes in Control and Portfolio Transfers|
Supervisory approval is required for proposals to acquire significant ownership or an interest in an insurer that results in that person (legal or natural), directly or indirectly, alone or with an associate, exercising control over the insurer. The same applies to portfolio transfers or mergers of insurers.
|Description||Definition of Control|
The insurance legislation does not include a definition of control other than one that is included in the Notification of the Insurance Commission Re: Persons Related to Directors of a Life Insurance Company. This definition appears to be used only for the purpose of the purchase or disposal of company property by related parties.
Legislative Authority Regarding Changes in Control
The legislation includes provisions for OIC approval of insurer mergers or acquisitions (section 13 and 14 of the NLIA and the LIA respectively) and founders must be approved at the initial licensing stage for insurance companies; however, the insurance legislation does not include ongoing general provisions requiring approval of changes in control, other than with respect to foreign shareholders.
Section 9 of the NLIA and Section 10 of the LIA apply to foreign owners: proposed acquisitions or changes in control that cause a foreign shareholder’s proportion to increase above 25 percent must be approved by OIC Board or the MOF with OIC board recommendation. A similar requirement exists in the OIC Notifications for Shareholders Proportion above 49 percent. On such changes the OIC coordinates with other supervisory authorities on foreign ownership transactions where necessary. The OIC has authority to reject foreign ownership transactions but does not have authority to reject changes in control of other insurers other than noted above.
The legislation does appear to include a provision requiring a change in shareholding of 5 percent or greater to be reported to the OIC but these changes do not require specific approval of the OIC. Circular Letter No. PorNor 0507/Wor5186 dated 14 December 2000 and Clause 2 (3) of Registrar Order No. 11/2547, 2004 require insurers to update their shareholder structure annually and report any change above 5 percent of issued shares.
Demutualization and Conversion of Companies:
Insurance legislation in Thailand does not contemplate mutual insurers. All insurers must be public limited companies or authorized branches of foreign insurers.
Portfolio transfers are covered pursuant to Section 13 and Section 57 of the NLIA and Section 14 and Section 51 of the LIA.
Sections 13 of the NLIA and Section14 of the LIA require the parties to the transfer to prepare a proposal for OIC review and give the OIC broad powers to approve or disapprove such transfers. When granting approval, the OIC may also prescribe any conditions as deemed appropriate to protect the interests of insureds, or to ensure the stability of business operations. It is usual practice that the OIC ensures that transferring policyholders are at least as well off as they would have been had the portfolio transfer not taken place.
Sections 51 of the NLIA and Section 57 of the LIA deal with companies seeking to discontinue their businesses and establish similar requirements to those noted above for transfers associated with an insurer withdrawing from the market.
|Comments||Partly Observed is based on the following observations:|
|ICP 7||Corporate Governance|
The supervisor requires insurers to establish and implement a corporate governance framework, which provides for sound and prudent management and oversight of the insurer’s business and adequately recognizes and protects the interests of policyholders.
Some general governance provisions can be found in the Public Limited Companies Act, 1992. For example, pursuant to section 67 of the Act, a company must have at least five directors, one half of whom must reside in Thailand. Pursuant to Section 85, directors must perform duties in accordance with the law, the objects and articles of association of the company, and resolutions of meetings of shareholders and with integrity, honesty and due care to preserve the interests of the company. A company can make claim against a director if the director fails to meet this duty.
In addition to these requirements, the OIC has recently introduced the Notification on Corporate Governance, 2018 under the LIA and the NLIA. The Notification replaces a guideline on corporate governance which was introduced in 2014. Prior to the Notification, the insurance legislation did not include many specific requirements needed to ensure good corporate governance but the OIC relied on detailed guidance issued in 2014 to assess and improve governance practices.
The Notification was patterned on the ICP 7 standards and has force of law. Major requirements include the following:
Roles and Responsibilities, Oversight, and Board Resourcing
Clause 12 of The Notification on Corporate Governance requires the insurer’s board to ensure that roles and responsibilities allocated to the board, senior management, and key persons in control functions are clearly defined.
In addition, according to Notification on Risk Management 2017, the Notification on Internal Control 2014 and the Notification on Corporate Governance 2018, an insurer’s board has responsibility to lead and oversee the operations of the company; set its strategic goals and direction; establish its corporate culture and commitment to fair treatment of consumers, establish an insurer’s code of ethics, and a whistleblower policy; and, establish and oversee a risk management and internal control framework.
The board is required to have the following committees,
The Notification on Corporate Governance 2018, Chapter 2, Clause 7 and 8 require the insurer to set up the structure and composition of board, including suitable number of directors of sufficient knowledge and experience so that they can carry out its role efficiently. It is also required that the board have appropriate internal governance practices, self-assessment process, and sufficient resources to carry out its work. In addition, there are requirements that the board have an appropriate number of independent and executive directors and a requirement for the Chair of the Board to be a non-executive member.
Responsibility of Individual Board Members
As previously mentioned, the Public Companies Act requires directors to perform their duties in accordance with the law, the objects and articles of association of the company, the resolutions of the shareholders and with integrity, honesty and due care to preserve the interests of the company. additional requirements are set out in the Notification on Corporate Governance to fully meet the requirements of ICP 7.4.
In order to ensure their ongoing suitability, directors are required to complete an annual self-assessment and submit it to the OIC. Each director’s self-assessment must be notarized by two other company directors.
Risk Management and Internal Control
Clause 8, Clause 9, Clause 10, and Clause 21 of Notification on Risk Management 2017 sets out that the board of directors is responsible for risk management framework, the risk management policy and approval of the three-year business plan. The Board must also define its business strategy in line with the risk management framework and policy, and oversee the insurer’s risk management function through an annual risk management report from the RMC.
According to Clause 4 and Clause 31 of the Notification of Internal Control 2014, the board is also responsible for ensuring that the insurance company establishes an internal control policy that is consistent with the consolidated risk management policy and complies with other particulars of the Notification.
Clause 12 of the Notification on Governance requires the board to approve a written compensation policy. At a minimum, the compensation policy must cover those individuals who are company directors, executives, key persons in charge of control functions as well as major risk–taking staff. It also requires them not to take inappropriate or excessive risks that could impact on the solvency of the company, and the interests of policyholders.
Financial Reporting, Internal Audit, and External Audit
Clause 12 (2)(g) of the Notification on Corporate Governance requires the board to ensure that the company has an accurate and reliable financial reporting system, and to disclose important financial information accurately, adequately, and in a timely manner to the public and regulatory authorities.
In addition, Clause 4 and Clause 21 of the Notification of Internal Control 2014 require the Company’s board members to be responsible for ensuring the compliance of insurance company with the Notification regarding internal audit and internal control, and overseeing the internal audit process, reports and findings.
Clause 12 (2)(d) of the Notification on Corporate Governance requires the board to oversee (through the audit committee) the external audit process including:
Senior Management Responsibilities
Senior Management responsibilities consistent with the requirements of ICP 7.10 are set out in Clause 14 of the Notification on Corporate Governance.
Adequacy of the Corporate Governance Framework
OIC reviews offsite review of insurer corporate governance frameworks, company risk management policies and three-year business plans, board self-assessments, and committee minutes. During onsite examinations, it interviews directors, senior management and the head of internal audit and risk management units to ensure compliance and adequacy.
|Comments||While the Notification 2018 is new, most of its requirements were included in earlier OIC guidance and have been used by the OIC to assess insurer governance for several years. As many of the governance requirements are principle based, it is recommended that the OIC continue to closely monitor their application by insurers over the next supervisory cycle.|
|ICP 8||Risk Management and Internal Controls|
The supervisor requires an insurer to have, as part of its overall corporate governance framework, effective systems of risk management and internal controls, including effective functions for risk management, compliance, actuarial matters, and internal audit.
|Description||Risk Management System|
The Notification on ERM/ORSA (2018) requires insurers to establish an effective risk management system. The notification, which has only recently been established, is intended to fully comply with the requirements of ICP 8 and ICP 16.
An insurer’s risk management system is required to cover the key risks faced by the organization, across its activities and processes, with a feedback loop embedded within the insurer’s ERM framework. A feedback loop is the process of assessing the effect of changes in risk leading to changes in risk management policy, tolerance limits, and risk-mitigating actions. The framework must also incorporate a set of key risk indicators that allow the company to actively monitor the key risks underlying the business.
The system is required to clearly separate risk-taking activities from risk oversight and risk monitoring activities. A risk culture must be defined and developed within the organisation, where risk management is seen as part of the responsibilities of every employee.
The risk management system must include processes which:
Risk Management Policy: The system should include a risk management policy which is consistent with the insurer’s business plan and covers the time horizon envisaged in the business plan. At a minimum, the policy must include:
The insurer’s RMC is responsible for setting the scope of the risk management framework and policy and ensuring the compliance of business operations to the framework. The committee is also responsible for overseeing the risk-related activities of the company monitoring their management and recommending any improvements, including establishment of risk mitigation plans in stressed circumstances.
The RMC is approved by the Board and must meet and report to the Board quarterly. The size of the committee should be commensurate with the size, type and complexity of business operations. The OIC has prescribed that the committee should have at least five members, at least one of whom is a Board member. The RMC is supported by a Risk Management Unit (see below).
Senior management responsibilities include, but are not limited to, ensuring personnel are appropriately educated on roles and responsibilities defined by the risk management framework and policy, as well as ensuring day-to-day operations are in line with the business strategy, risk management framework and policy, and ensuring the completeness and accuracy of the ORSA.
Subsidiaries of companies with offshore owners or foreign branches can have the offshore RMC perform the prescribed responsibilities subject to the OIC being satisfied that the regulatory requirements are being complied with.
Internal Control System:
The Notification on Internal Control, 2014, establishes requirements for insurers to have an effective internal control system. The board of directors of the company and its senior management have a duty to establish the system. In addition, the Notification requires the company to establish an independent audit committee which has responsibility to monitor the internal control system on behalf of the board.
The internal control system must cover the system for receiving and paying money, monitoring of compliance with laws, and internal audit. It must cover organizational structure, the delegation of powers, duties and responsibilities, rules and authorizations, and allocation of resources in terms of personnel, budget and information technology systems in an appropriate manner.
It also requires the company to have a written manual, adequate training communication for employees, and regular assessment of the adequacy of the internal control system.
Effective Control Functions
The OIC requires insurers to establish four control functions. Each of these functions must have sufficient resources, access to the board, and independence from the operational programs of the insurer. The board is also involved in the remuneration and hiring of control function heads. More detailed function requirements are described below:
Risk Management: The Notification on ERM/ORSA (2018) requires the insurer to have a risk management unit to be responsible for identifying, controlling and mitigating key risks in the company. The risk management function’s responsibilities include, but are not limited to, identifying, assessing and reporting on key current and future risks including any changes in the company’s risk profile, conducting regular stress testing and production of the company’s ORSA for internal and regulatory submission.
Compliance: Clauses 29–30 of Notification on Internal Control 2014, requires insurance companies to establish compliance units. The duties of the unit must include:
Actuarial Function: Pursuant to the Notification on ORSA, the insurer is required to establish an actuarial function to evaluate and provide advice to the insurer on matters including:
OIC allows insurers to outsource control function duties. In such cases, the board of directors of the company is still responsible for the work, which has been delegated and must have controls to ensure that it is conducted in an accurate efficient and timely manner. There must be a service agreement that allows the OIC access to information for inspection (see ICP 9).
Adherence to the requirements by insurers is assessed through onsite inspections carried out by OIC and through review of the annual governance framework document.
|Comments||As many of the Risk Management and Internal control requirements are principle based, it is recommended that the OIC closely monitor the application of these requirements by insurers over the next supervisory cycle.|
|ICP 9||Supervisory Review and Reporting|
The supervisor has an integrated, risk-based system of supervision that uses both offsite monitoring and onsite inspections to examine the business of each insurer, evaluate its condition, the quality and effectiveness of its Board and Senior Management and compliance with legislation and requirements. The supervisor obtains the necessary supervisory information to conduct effective supervision of insurers and evaluate the insurance market.
Section 48 of the LIA, and Section 51 of the NLIA, give the OIC authority to conduct offsite monitoring and onsite examinations. These Acts also give the OIC broad powers to request documents and other information from an insurer or people associated with an insurer (Section 43–45, and 48 of the LIA and Section 47–49, and 51 of the NLIA). There is a Notification Re: Rules, Procedures, and Conditions on Preparation of RBC Report of Life/Non-life Company, 2011, which sets out the scope, content and frequency of RBC report submissions. The OIC also has several provisions which require insurers to report significant changes to their corporate governance.
The OIC also has the authority to request information and examine outsourced activities. Pursuant to Section 36 of the LIA and Section 35 of the NLIA, certain activities cannot be outsourced without OIC approval. This includes claims management activity (excluding reinsurance). Underwriting activities cannot be outsourced under any circumstances. If outsourcing for these activities is permitted, by the OIC, Clause 9 of the Notification of Re: Rules, Procedures, and Conditions for Indemnity or Compensation under Insurance Contracts by Non-life Insurance Companies, B.E. 2559 (2016), OIC requires that the company exercise oversight and control, and make testimony, provide opinions, or submit relevant documents and evidence to the OIC upon its request.
More generally, the Notification of the Office of the Insurance Commission Re: Guidelines for Outsourcing by Insurance Companies requires that insurance companies execute with the service providers written agreements that allow the OIC, the company, or other relevant authorities to inspect the operation and internal control systems, and request relevant information from the service provider or sub-service provider (if any) that is related to the service.
The OIC’s supervisory framework is a risk-based approach broadly modeled on the Canadian Office of the Superintendent of Financial Institutions supervisory framework. This supervisory approach uses both offsite monitoring and onsite examinations to assess institutions. Under this approach the supervisor defines the significant activities of an institution, assesses these activities against six categories of inherent risk: Strategic risk, Insurance risk, Market risk, Credit risk Operational risk (includes compliance risk), and Market Conduct risk. The supervisor then examines the governance, risk management, and internal controls systems of the institution (which mitigate risk) to assign a net risk rating by significant activity. The net risk ratings are aggregated into a single net risk rating for the institution. The supervisor then examines the capital, profitability, and liquidity of the institution to assign a composite risk rating for the institution.
The composite risk rating for the institution, along with information and judgement about the seriousness of supervisory problems, is then used to determine the level of intervention in the institution against a ladder of intervention (see ICP10.) and to develop an onsite plan for the coming year.
Two internal OIC memoranda, “The Early Warning System (EWS) and Triggers for Early Intervention” and “Risk Focused Examinations” set out details of the framework for insurers.
The OIC requires insurance companies to submit financial statements, and financial and operational reports on an annual and a quarterly basis. The information is analyzed to identify risks and to help gauge the insurer’s solvency position. As previously mentioned, the OIC has the ability to request additional information and to increase the frequency of reporting as required.
The Notification on Submission of Financial Statements and Report on the Operations, 2016, sets out information requirements which need to be submitted by insurers periodically to the OIC. All annual financial statements must be audited and quarterly statements must be reviewed by the auditor.
In addition, OIC requires insurers to summit other reports periodically. Examples include:
OIC regularly reviews its reporting requirements. Many requirements are relatively new as they were introduced in 2016. Some have been modified as recently as in 2018.
Offsite monitoring and analysis largely focuses on the financial position of insurers, and trends in financial position and operations, including corporate governance, compliance, and market conduct. The OIC looks at quarterly and audited annual financial statements, annual reports, financial statement notes, external audit reports, the written corporate governance framework (and any changes to it), the three-year business plan, the risk management policy, actuarial report, and the latest offsite analysis report.
Analysis of quarterly and annual reports is divided into two levels:
An onsite supervision plan is developed each year based on information from offsite supervision and information received by other OIC departments. Five features are considered in developing the annual onsite plan and prioritizing insurers:
Full scope examinations: These look at the inherent risk associated with all of the insurer’s significant activities, mitigated by its governance and internal control processes. All six categories risk categories are assessed. The OIC then examines Solvency, Earning, and Liquidity which are determined based on CAR, ROE, and liquidity ratio to set a composite risk rating for the insurer.
As part of these examinations OIC looks at information including: the governance framework, business plan, risk management and internal control systems, committee minutes, interviews of key directors and staff (e.g., internal audit staff), and written policies and procedures by key department.
Full scope examinations are currently targeted for all insurers over a three to five-year cycle but, have until recently been carried out over a maximum seven-year cycle. Out of 83 companies, there were only two companies that had a six-year cycle and only four companies that had a seven-year cycle. The other 77 companies had a cycle of five-year cycle or less. The CAR ratio of each of those six companies was in excess of 250 percent.
Targeted Examinations: These look at specific issues or concerns drawn from other analysis and which might have significant impact on the insurer’s present or future operations (e.g., investment in loans secured by real estate). This kind of the examination helps guide future offsite monitoring and the frequency of onsite examinations.
Thematic Examinations: These are used to assess specific issues or concerns that may have implications across a number of insurers. They are typically used to assess compliance with new regulatory requirements or specific problems with a line of insurance business.
Emergency Examinations: The OIC has the power to conduct emergency examinations of insurers without warning. This power is used carefully and in special circumstances. In 2018, two such emergency examinations were conducted.
The OIC discusses the findings and actions to be taken to rectify matters with the insurer. The formal OIC process for onsite inspections requires that the OIC provide the insurer, via its board and senior management, with a draft “Fact Findings and Management Actions Report” usually within a fortnight of completion of the onsite inspection, and the insurer is invited to respond.
The OIC has procedures to follow-up on the results of previous findings. When the Company corrects all issues on a Fact Findings Report, the onsite team will then visit the Company to review whether the Company has fully addressed the issues.
COB supervision is presently carried out largely through analysis of individual complaints, company complaint statistics and through onsite analysis of policies and procedures. The OIC has plans to augment its supervisory practices in this area including more thorough and detailed analysis of insurer and intermediary COB policies and reporting, as well as targeted and thematic examinations of COB.
OIC has identified a number of insurance groups operating in its market. The OIC is not a home supervisor for any of these groups. For Financial groups within Thailand, the BOT is the Home (lead) supervisor. For international groups, OIC participates in supervisory colleges and in information sharing with other supervisors but generally supervises on an individual insurer basis.
|Comments||The OIC has made significant progress in developing and implementing a good supervisory framework for insurers. The largely observed rating is based on the observations some of the current framework is new (post 2016) and has not been tested by a full onsite cycle with all institutions.|
It is recommended that the OIC consider:
|ICP 10||Preventive and Corrective Measures|
The supervisor takes preventive and corrective measures that are timely, suitable, and necessary to achieve the objectives of insurance supervision.
|Description||Unauthorized Insurance Activities|
Section 17 of the NLIA and Section 18 of the LIA state that no person shall act as an insurer by entering into an insurance contract with any person unless he or she has obtained a license to undertake insurance business. Pursuant to Section 86 of the NLIA and Section 91of the LIA, anyone who acts as an insurer without a license shall be liable to be fined and/or subject to imprisonment. The fine ranges between THB 200,000 and THB 500,000 (US$6,000 and US$16,000) plus an ongoing penalty of THB 20,000 per day (US$300).
Section 63 of the NLIA and Section 68 of the LIA require any person wishing to act as an insurance agent or broker to obtain a license from the Registrar (OIC). Pursuant to Section 99 of the NLIA and Section 105 of the LIA, anyone who acts as an agent or broker without a license shall be subject to a fine of up to THB 50,000 (US$1,500) and/or imprisonment of up to six months.
During the last five years the OIC has dealt with several cases of unauthorized activity from insurers. Most frequently these cases involve unauthorized activity from people acting as agents and brokers. These cases are referred to the Royal Police for investigation and prosecution, and the police have taken action against the parties engaged in unlicensed activity.
Power to Take Corrective and Preventive Measures
As part of the OIC’s supervisory process, remedial action is first dealt with through discussion with insurers and increasing the level of supervision. In effect, the OIC uses “moral suasion” to obtain the voluntary agreement of the insurer to address perceived deficiencies in a required manner.
The power of “moral suasion” is said to be very strong in Thailand. The assessors’ understanding is that in Thai society, requests made through “moral suasion” are usually viewed not as suggestion, but as a directive to act. The types of actions agreed to will be specific to the particular insurer and issues to be remediated but might include:
The OIC ladder of intervention does not appear to contemplate the use of most of its strongest enforcement powers until problems in insurers are at a very serious level. In addition, the ladder of intervention does not contemplate a clear point where the supervisor turns its focus to the orderly wind-up of the institution rather than remediation of its problems.
|Comments||Largely Observed is based on the observation that the ladder of intervention appears to leave the use of the OIC’s strongest preventative and corrective powers until an insurers financial condition is extremely serious and when the supervisor should be focused on its orderly wind-up as a gone concern rather than its recovery.|
It is recommended that OIC consider modifying the ladder of intervention to add an additional stage focused on preparing for the orderly wind-up of the insurer as a gone concern.
The Supervisor enforces corrective action and, where needed, imposes sanctions based on clear and objective criteria that are publicly disclosed.
The OIC has a number of powers to enforce corrective action:
After corrective action has been taken, the OIC checks compliance by the insurer and assesses effectiveness usually through offsite reporting or onsite examination.
The OIC has additional enforcement powers under the Administrative Procedure Act (APA). The APA is able to be applied by all governmental organizations, including the OIC. Section 58 of the APA provides for the enforcement of administrative orders (translated in the APA ambiguously as acts, meaning action), including: Section 58 (1) Failure to comply with a direction of the OIC (such as an order for a capital injection) results in a penalty of THB 20,000 per day, and if the company does not pay the administrative fine, the official (OIC) may seize assets of the company (Section 61 and Section 57 of the APA).
However, in practice, if a company violates or fails to comply with the OIC’s administrative orders, the OIC accelerates the case by invoking more severe penalties (e.g., suspension of business, removal of directors, or revocation of license). Apart from this, the OIC also has the power to enforce criminal sanctions for not complying with administrative orders. The OIC does not have to plea to court to enforce criminal sanctions under NLIA and LIA but the sanctions can also be enforced through the OIC’s Settlement committee.
The OIC does not have the power to take control of non-life insurers: Section 52 also allows the Registrar, with the approval of the Commission to temporarily suspend the underwriting of non-life insurance (section 54 of the NLIA provides that in case of a temporary suspension of the underwriting, its directors, officers, or employees must not make any payments, or remove or dispose of the company’s assets, except for payment of salaries or wages to the company’s officers or employees as normal. Other payments must be made as prescribed by the Registrar. OIC officials advise that for non-life insurance companies, as the contracts are all short term, the power the OIC has under Section 52 has been sufficient in the past to rectify the arising problems. If the company cannot improve its position, its license will be revoked, and the Policyholder protection will step in to protect the benefits of policyholders.
Fines and penalties
The legislation establishes fines and penalties for major contraventions. Some of the fine levels appear to be very low compared to other jurisdictions, but prison terms associated with major contraventions are significant. OIC officials advise that the combination of fines and penalties is an effective deterrent into contraventions in the market.
The process involved in determining a fine or penalty involves a special body called the Settlement Committee. It acts in a manner similar to a court. The Settlement Committee is comprised of senior officials from government including, the Permanent Secretary of the MOF, a senior police official and the Secretary General of the OIC. It is empowered with the authority to hear cases and assign penalties for the settlement of contraventions. It has criteria to ensure that similar contraventions are dealt with in a similar manner. The settlement Committee’s decisions are appealable to the court system and the grounds of appeal are specified in Section 9 of Establishment of Administrative Court and Procedure Act (as mentioned in ICP2).
Penalties for failure to provide information
The OIC is empowered to order the company to submit any reports or documents on the undertaking of its life insurance business under Sections 45 and 48 of the LIA, and Sections 49 and 51 of the NLIA.
The penalties for intentionally giving a false statement or concealing any facts are imprisonment up to 1 year, or a fine, or both under section 114 of the LIA and Section 108 of the NLIA.
|Comments||THE OIC’s ability to enforce corrective action could be enhanced by some strengthening its enforcement powers.|
It is recommended that:
|ICP 12||Winding-up and Exit from the Market|
The legislation defines a range of options for the exit of insurance legal entities from the market. It defines insolvency and establishes the criteria and procedure for dealing with insolvency of insurance legal entities. In the event of winding-up proceedings of insurance legal entities, the legal framework gives priority to the protection of policyholders and aims at minimizing disruption to provision of benefits to policyholders.
|Description||Legal Authority and Policy Holder Priority|
The procedures for the winding-up and exit of an insurer from the market are set out in legislation: Sections 51 and 65–67 of the LIA, and Sections 57, 60–62 of the NLIA are the relevant sections:
Sections 51 of the LIA and Section 57 of the LIA require a company wishing to discontinue its business to file an application for permission to the Commission.
Sections 65–67 of the LIA and Sections 60–62 of the NLIA provide for the appointment of a liquidator and allow the liquidator to use the security deposit of the company as well as the its reserves to pay policyholder and beneficiary claims. If there is a deficiency in funds available to pay policyholder and beneficiary claims, the policyholder is entitled to make application to the relevant industry guarantee fund for additional compensation up to the prescribed limit for the compensation fund (i.e., THB 1,000,000).
There is a time limit for policyholders to make applications to the guarantee fund (60 days from the date insurance creditors receive notification from the fund). This is a time frame that encourages the policyholders to claim additional compensation quickly. If the policyholders fail to apply to the compensation fund within such a period, they are still entitled to receive payment from the guarantee fund within 10 years (Section 85/5 LIA and Section 80/5 NLIA).
In case the policyholders are entitled to receive compensation of more than the limit of the guarantee fund, the policyholders can pursue the balance from the pool of assets of the company in the bankruptcy process. As creditors, policyholders rank below secured creditors of the institution on a priority rating alongside the tax creditor, but ahead of general creditors (section 26 of NLIA and LIA and 130 of Bankruptcy Act).
Specification of a Winding-Up Point
The legislation does not provide for the determination of a specific point at which it is no longer permissible for an insurer to continue its business. Sections 64 to 66 of the LIA, and Sections 59 to 62 of the NLIA provide for the Minister to revoke an insurer’s license in a number of circumstances (e.g., liabilities exceed assets) but these sections do not require the Minister to revoke the licence. As a result, there is no specific point where it is no longer permissible for the insurer to continue its business (e.g., a defined point where the license must be suspended or revoked).
|Comments||Largely Observed is based on the observation the legislation does not specify a clear point at which it is no longer permissible for an insurer to continue its business. These concerns are partially mitigated by the strong supervisory practice of the OIC with respect to capital and the existence of policyholder protection funds.|
It is recommended that the legislation be amended to clearly establish a point at which it is no longer permissible for an insurer to continue its business (e.g., a CAR of less than 100 percent or situations where the Commission finds that an insurer’s actions present a significant and unreasonable risk to the interests of policy holders and beneficiaries). This could perhaps be tied to a risk-based solvency requirement for insurers and/or the ladder of intervention.
|ICP 13||Reinsurance and Other Forms of Risk Transfer|
The supervisor sets standards for the use of reinsurance and other forms of risk transfer, ensuring that insurers adequately control and transparently report their risk transfer programs. The supervisor considers the nature of reinsurance business when supervising reinsurers based in its jurisdiction.
|Description||Thai-based insurers cede risks to domestic and foreign reinsurers:|
The Thai-based supervisory regime applies uniformly to reinsurers and insurers alike, e.g., with respect to requirements for risk management, internal controls, RBC, winding up, and more. However, there are some regulations that apply specifically to reinsurance activity, be that of a Thai-licensed insurer or reinsurer.
The Notifications on Reinsurance for Life and Non-Life (2018) built on the supervisory framework applicable to the reinsurance activities of insurers and reinsurers that had been in place since 2012, and which had since been augmented in 2017 with more detailed reporting requirements. The notifications take an approach that is principles-based and permits insurers to structure reinsurance programs as they deem appropriate as long as they are in accordance with each insurer’s risk appetite, and meets standards on risk management and solvency.
Notably, the notification is intended to be ICP 13-compliant. It requires the Board of Directors of an insurer to establish policies and approve the reinsurance framework as part of the overall ERM framework; oversee reinsurance transactions to be in accordance with the reinsurance management framework, and with OIC rules and regulations; and establish internal controls to ensure that the reinsurance management framework is properly implemented. The notification applies uniformly to the reinsurance-related activities of both professional reinsurers and insurers licensed in Thailand.
In turn, assigned executives of the insurer are required to manage reinsurance within the terms of the Board-approved reinsurance management framework; to regularly review the reinsurance program and its performance; and to have written operational procedures, reinsurance handbooks, internal controls, and reporting systems to evaluate the effectiveness of the reinsurance program.
The reinsurance management framework is required to include an organizational structure identifying the division or person in charge of reinsurance activities and others responsible for directing, supervising, and monitoring the company’s reinsurance-related activities to be in compliance with that framework; the responsibilities of the assigned division or individual in charge of reinsurance; a reinsurance strategy which forms an integral part of the ERM and capital management frameworks; levels of risk retention and transfer consistent with the insurer’s risk appetite and capital management goals; and guidelines for risk management and internal controls related to reinsurance. Insurers are required to assess the reinsurance program performance and report thereon to OIC annually.
The NLIA stipulates that a non-life insurer cannot retain any risk/policy in excess of 10percent of its capital except by written permission of the OIC, although there is no corresponding provision applicable to life insurance in the LIA.
While reinsurance is a necessary capital and risk management tool, some limits apply as per the 2018 notifications:
With respect to credit risk from reinsurers, ceding companies are required to:
Insurers must also ensure that the maximum event retention is in line with the company’s reinsurance management framework.
Reinsurance contracts must be comprehensive and completed within a reasonable time, with clearly-defined terms and conditions, and subjected to company procedures for controlling and monitoring the contract documentation process. Reinsurance contracts may not go into effect prior to validated and documented acceptance by the parties, e.g., as documented by a signed cover note or reinsurance slip. Facultative reinsurance must be purchased before the insurer underwrites the subject risk. There is no prescribed timeframe by which a fully executed contract must be available after its effective date.
As part of the reinsurance management framework, insurers must have an established means to address liquidity risk, including procedures for monitoring and maintaining liquidity positions. OIC requires insurers to set up a contingency plan for large claims or series of claims which can include short-term liquidity management, and accelerating payments of amounts due from reinsurers. Reinsurance contracts should include conditions relating to cash calls, collateral or deposit accounts.
The Commissioner may require insurers to conduct stress tests to assess the efficiency of reinsurance program, to include OIC-prescribed scenarios.
Reporting on Reinsurance to the OIC
OIC requires insurers to submit copies of reinsurance contracts as well as any related amendments and side letters at the Registrar’s request.
The OIC also requires insurers to submit a report annually to include:
Supervisory Processes Related to Reinsurance
The OIC’s offsite monitoring process reviews the insurer’s RBC report, financial statement, financial reports, as well as the additional information on reinsurance provided by insurers. Steps include:
Onsite inspection procedures for reinsurance activities include:
As a result of the foregoing, the OIC may require an insurer to amend a reinsurance treaty or facultative reinsurance contract.
The MOF has agreed to implement an economic development strategy that would enhance the competitiveness of reinsurance in Thailand by encouraging potential insurance companies to apply for reinsurance licenses in the form of a branch of a foreign insurance company. OIC is driving this policy in cooperation with the MOF and other related government authorities. Currently, the draft reinsurance licensing regulation (Ministerial Regulation on Rules and Procedures for Applying and Issuing Reinsurance Licenses in a Form of a Branch of a Foreign Insurance Company) is in a public hearing process.
|Comments||While the assessment observes compliance with the ICP principal statements, it is noted that assuring amounts recoverable from large foreign-based reinsurers without a physical presence in Thailand could be challenging should a domestic insurer become insolvent. It is therefore recommended that the OIC consider:|
The supervisor establishes requirements for the valuation of assets and liabilities for solvency purposes.
|Description||The OIC has established requirements for the consistent valuation of assets and liabilities for solvency purposes, stipulated by the Notification on Asset and Liability Valuation (for life, and for non-life, both 2011). The notifications apply both to domestic insurers and to branches of foreign insurers that are licensed to undertake insurance business in Thailand.|
In Thailand, TFRS is used for general purpose financial reporting, e.g., to shareholders and other stakeholders. TFRS generally conform to IFRS, however with a one-year time lag to implement new IFRS standards and amendments.
For solvency purposes as set forth by the OIC, reliance is made on TFRS rather than a differing prescribed supervisory approach. There nonetheless may be differences in asset and liability valuations between audited general-purpose financial reports based on TFRS on the one hand, and solvency reporting to the OIC on the other. The former is a more principles-based accounting framework, whereas the latter has some prescriptive elements set forth by the OIC. For example, technical provisions for insurance liabilities may differ between TFRS and solvency reporting to the OIC. Any differences between an insurer’s TFRS and solvency reporting are required by the OIC to be publicly disclosed (see ICP 20).
TFRS as currently adopted includes implementation of IFRS 4 on accounting for insurance contracts, an interim measure put in place by the International Accounting Standards Board (IASB) to generally allow continued use of existing local jurisdictional accounting guidance until a more comprehensive and updated version (now IFRS 17, still in process of some amendments by the IASB) can be adopted and implemented (currently anticipated in 2023 for TFRS). Thus, IFRS 4 did not specify a single international approach to accounting for insurance contracts. Accounting profession representatives indicate that, despite the principles-based approach and lack of prescription within IFRS 4, that local insurance industry association efforts have nonetheless been helpful in narrowing the range of application of IFRS 4 in practice across Thai insurers.
That said, the industry and the OIC are very much focused on the future implementation of IFRS 17 (as well as IFRS 9 on financial instruments) and its implications on implementation, including implementation and ongoing maintenance costs, changes to IT systems and applications, the company’s business plans, impacts on the understanding by stakeholders of insurers’ financial risks and operating results, and on the prudential supervision of insurers in Thailand.
Invested assets such as investments in listed equities and debt securities are valued at market value based on recent trades on recognized exchanges; derivatives, and policy loans at fair value; properties at appraised value; and reinsurance assets are valued consistent with the underlying insurance liabilities.
Non-listed securities are valued on a mark-to-market basis where recent and objective market values exist, otherwise on a mark-to-model basis. A company may change the model valuation method only after satisfying the OIC that existing method no longer best represents the fair value of the relevant debt instruments and, if need be, the OIC may call in a valuation expert to opine. Given the local investment markets and securities exchanges as well as the risk appetite of Thai insurers generally, investments in unlisted securities requiring a mark-to-model approach in the insurance sector have not been material.
Loans (other than policy loans) and premium receivables are valued at the principal or recoverable amount outstanding after adjustment for estimated impairments. In the Thai market, a Discounted Cash Flow model is commonly used for loans, using a discount rate based on a zero-coupon bond with adjustment for risk premium. Another commonly used method in loan valuation is amortized cost adjusted when necessary for impairment, consistent with TFRS. Other assets follow TFRS. Policy loans, cash, and cash equivalents are valued at face value.
Other general aspects of valuation include the following:
The “Notification on Risk Based Capital” requires detailed and specified levels of conservative adjustments to the technical provisions which is comprised of a “Best Estimate (BE)” and a “Provision for Adverse Deviation (PAD).” The OIC considers PAD and BE as synonymous with corresponding terms used in the IAIS ICPs, i.e., “Margin Over Current Estimate,” and “Current Estimate,” respectively.
Technical provisions for both long-term and short-term insurance contracts are measured using actuarial valuation methods. The Notification on Asset and Liability Valuation prescribes actuarial valuation methodologies based on contract boundary; long-term policies are determined using a Gross Premium Valuation, whereas short-term policies are determined using a claim development method, e.g., paid or incurred loss extrapolations.
In terms of product mix, the Thai life insurance market is relatively basic, with 77 percent of life insurance premiums in force comprised of whole life or endowment products. The BE is determined by a licensed actuary based on the company’s data, incorporating industry data when deemed appropriate, when selecting key assumptions. The discount rate for life contracts is based on the greater of (i) the current yield on zero coupon government bonds, or (ii) the weighted average of a zero coupon government bond yield at the end of 8 previous quarters from the valuation date, weighted 51 percent for the current quarter and 7 percent for each of the seven previous quarters.
For the BE, insurers are required to account for all future cash flows that may arise from the underlying insurance contracts, including for embedded option and discretionary payments for participating products (embedded options and guarantees are not widely used in Thai insurance market which largely features traditional products).
For long-term life insurance contracts, a gross premium valuation is used to establish the present value of net cash flows at the 75th percentile, floored at zero by major product segment. For life insurance contracts with investment elements, an actuary must estimate the insurance liability of guaranteed benefits and non-guaranteed benefits separately. Assumptions must be appropriate, unbiased, current, and reflect the liability that arises from the insurance contract. Guaranteed benefits are discounted as described in the prior paragraph. Due to the nature of investment elements of non-guaranteed benefits, the discount rate of such benefits can include an equity risk premium which considers the insurer’s own asset portfolio, subject to a 6 percent cap.
In terms of product mix, the Thai non-life insurance market is relatively basic, with most contracts for motor insurance with an average 3-year contract term. Non-life provisions are not discounted. Technical provisions for short term policies consist of the premium liabilities and claim liabilities:
For life insurance business, the PAD is intended to cover potential adverse deviation relating to key assumptions for future cash flow projections such as mortality rates, morbidity rates, lapse rates, and maintenance expenses. For non-life insurers, the PAD is prescribed by type of product, e.g., Fire, Marine-Cargo, Marine-Hull, Compulsory Motor, Voluntary Motor, Industrial-All Risks, and Miscellaneous. In the case of long-term contracts written by non-life insurers, a GPV method and PAD is applied as would be done by life insurers. For short-term contracts written by life insurers, a claim development method and PAD is applied as would be done by non-life insurers.
While certain type of provisions (e.g., options) are conducive to stochastic modeling and explicit calibration at stated confidence levels, others require more expert judgment. Furthermore, the 75th and 95th percentiles were agreed upon by the industry with the OIC considering, among other factors, the range of corresponding supervisory requirements across the ASEAN region.
For assets and liabilities for which valuation requirements are provided by regulation, such requirements address measurement, but do not address the recognition and derecognition of those assets and liabilities—the points in time when an asset or liability is created and should be reported, and when it ceases to exist and should not be reported—including as to insurance and reinsurance contracts and related receivables and liabilities. The notifications do provide that “any assets for which a valuation method is not specified herein shall be valued according to the recognition and measurement method specified in the GAAP” (emphasis added).
|Comments||It is recommended that the OIC clarify guidance for the recognition and derecognition of assets and liabilities, e.g., by expanding the references to TFRS in the notifications to indicate that assets for which any aspect of its valuation method is not specified by the OIC, that such aspect is to be valued according to TFRS.|
The supervisor establishes requirements for solvency purposes on the investment activities of insurers in order to address the risks faced by insurers.
|Description||Roles and Responsibilities of the Board and the Investment Committee, and Investment Policy|
The Notifications on Investment for Life and Non-Life (2015) set out certain overarching requirements and principles with respect to the investment function of licensed insurers, as follows:
The notifications further impose various investment-related duties which include appointing an Investment Committee comprised of at least 3 persons to be responsible for establishing and maintaining an investment policy and investment plan and overseeing the investment activities of the company.
Insurers are required to submit an investment policy framework and investment strategy to OIC at least annually. OIC reviews and monitors compliance by insurers with their respective framework and strategy through regular offsite reporting and onsite examinations (see ICP 9), including with respect to investments. Insurers also must have an annual investment plan and an investment manual. The investment manual must contain details of the investment process from start to finish, segregation of duties for checks and balances, and authority for approving investments. The investment manual must be reviewed on regular basis, with any changes submitted to the OIC within 30 days.
The investment policy framework, risk management policy, and risk management processes must be appropriate for the company’s nature and capabilities, and sufficient to enable the Investment Committee and the Board to monitor and control the company’s investment activities consistent with the overarching principles cited above in the Notification.
The investment policy must be in writing and approved by the Board, and be consistent with the ERM policy, product design, underwriting policy, reinsurance strategy, assets and liabilities management, capital and solvency, risk appetite, expected returns, and capability of systems and personnel in accommodating the investment. An investment risk management process must also be in writing and established as a part of the enterprise risk management policy.
The investment committee also must oversee good governance, transparency, and prevention of conflicts of interest concerning the company’s investment transactions, and ensure that operation systems, personnel and information supporting the company’s investments will be adequate.
In setting investment limits and risk charges, the OIC has taken into consideration the security, liquidity and diversification characteristics and needs of insurers’ investment portfolios. The OIC has prescribed eligible asset classes and corresponding limits that it deems appropriate for the nature of the insurance business. High risk assets or other assets that the OIC considers to be inconsistent with the nature of the business and policyholder protection, such as hedge funds and derivatives used for speculative purposes, are not permitted holdings for Thai insurers.
Separate investment limits by product and issuer are established as percentages of the total market value of investment assets
Counterparty limits are as follows:
Real estate is permitted as an investment for life insurers, subject to certain conditions, but not for non-life insurers.
Qualifications of Investment Managers
Either the board or the Investment Committee must appoint a “person in charge of the investment unit,” i.e., a manager, subdivision head or person in an equivalent position, to be responsible for the investment unit with the authority to make decisions on the company’s investment and to manage its investment fund.
The investment manager most hold certain minimum professional qualifications, e.g., a certain educational background or has passed professional courses such as Chartered Financial Analyst and a course prescribed by the OIC. If the investment manager lacks sufficient qualifications, then the insurer is permitted to invest only in low risk assets such as bank deposits and government bonds, else it must outsource the investment management function to professional fund managers.
Security and Safekeeping of Investments
Insurers are required to deposit 25 percent of assets with the OIC, and the remainder as “back-up assets” with custodians to ensure availability safekeeping in an appropriate location. Custodial financial institutions must be approved private fund custodians according to the rules, procedures, and conditions prescribed by the SEC. The financial institution must report monthly to the OIC the names, types, and amounts of the insurer’s assets deposited and withdrawn, the outstanding balance on the last business day of the month, and any obligations related to the assets.
Appropriateness of Investments Relative to the Liabilities Backed
The Notification on ERM/ORSA requires insurers to establish an Actuarial function to address various matters including asset-liability management. Insurers must hold investment assets and cash sufficient to cover technical provisions and capital requirements and to ensure security and liquidity. Life insurers must maintain capital proportional to risks that may arise from asset and liability mismatching; RBC requirements provide an incentive for them to do so as a high duration gap will result in an increased ALM capital risk charge. Because of ALM practices in place at Thai life insurers, a majority of their investment portfolios are comprised of long-term assets, 70 percent being in government bonds and corporate bonds. In contrast, most liabilities of non-life insurers are short term; subsequently, deposits and short-term notes comprise the majority of their portfolios. For more on ERM/ORSA, see section herein on ICP 16.
Use and Reliance on Credit Ratings
As noted in this section, the OIC’s requirements depend, in part, on the use of credit ratings. For example, debt instruments must have a credit rating of investment grade or above. The Notification on Investment provides that, if the issuer of the debt instrument that is held by an insurer or the debt instrument itself becomes lower than investment grade, the company must divest the debt instrument at the first available opportunity. It is therefore a statutory requirement that any instrument, which has been regraded and is no longer investment grade; and all instruments held from a company, which has been regraded and is no longer investment grade, be sold “at the first available opportunity,” meaning within a reasonable period of time to mitigate further negative impact on the price of the instrument to be sold.
If the instrument is not sold immediately, there is some exposure to procyclical activity. The OIC addresses this through stress testing and market value shocks to the portfolio. The stress testing; therefore, takes into account the lower value (if any) of the instrument to be sold.
Supervisory Authorities and Processes
If the company’s investment is not in accordance with the investment policy framework and the investment manual or is inconsistent with the capability of the operation systems and personnel, or financial position of the company, the Registrar may order the company to clarify relevant reasons and facts related thereto. If it is deemed appropriate, the Registrar may specify conditions for the company to follow or order the company to suspend such investment until it can comply with the requirements. For an investment that violates OIC requirements at the outset, the OIC can mandate that it be non-admitted from the balance sheet, i.e., recorded at zero value with a corresponding reduction in equity for solvency purposes.
OIC checks whether insurers comply with the Notifications and analyzes investment risks to ensure that investments are appropriate for the liabilities backed and that there is adequate liquidity, engaging with the insurer as necessary to resolve identified concerns. Moreover, OIC may request the company to provide scenario analyses and stress tests to assess possible future impacts on cash flows.
Derivatives, Structured Notes, and Securities Lending
Insurance companies in Thailand are permitted to use derivatives, however only for hedging purposes and with OIC approval. As a practical matter, derivative usage is not significant given the relatively basic nature of most insurance contracts in the Thai market. Moreover, the derivative counterparty must be a domestic financial institution with an investment-grade credit rating, and underlying assets must be as prescribed in the Notifications. Insurers are required to establish a written policy for their use of derivatives or structured notes as a part of an investment policy framework.
For securities lending and repurchase transactions, insurers are required to maintain collateral sufficient to cover the values of loaned securities or set an appropriate ‘haircut’ to counterparties’ risk profiles (Clause 59–60 Life insurance and Clause 58–59 Non-life insurance. As a practical matter, such activity is not significant in the Thai market.
Insurers’ Investments in Other Businesses
Thai insurers may acquire and hold interest in other businesses related to insurance, e.g., in an asset management company. An interest in more than 20 percent of the total equity of an investee requires prior OIC approval, and the investee then would also become subject to supervision by the OIC. This asset is then eliminated from the insurer’s balance sheet for its solvency purposes. The insurer is required to submit financial statements of such investees annually and any information or data the OIC may request. It also must inform the OIC on a timely basis when there are any significant circumstances related to the holding that may pose risk to the insurer, including reputational risk.
|ICP 16||Enterprise Risk Management for Solvency Purposes|
The supervisor establishes enterprise risk management requirements for solvency purposes that require insurers to address all relevant and material risks.
|Description||The approach taken by Thai authorities to ERM has evolved over the past decade. The first Notifications on the Minimum Requirement of ERM, one for life insurers and another for non-life, were issued in 2008 and became effective in 2009. They required insurers to:|
OIC then issued Notifications on ERM/ORSA (2019, for life and non-life) with more enhancements, including requiring insurers to perform ORSAs. The 2019 notifications provide for:
Some key requirements of the 2019 notifications include the following:
|Comments||Largely observed is based on the following observations:|
|ICP 17||Capital Adequacy|
The supervisor establishes capital adequacy requirements for solvency purposes so that insurers can absorb significant unforeseen losses and to provide for degrees of supervisory intervention.
|Description||Total Balance Sheet Approach|
The RBC regime in Thailand uses a total balance sheet approach. All assets and liabilities must be disclosed on the balance sheet for solvency purposes. Thai capital adequacy requirements are imposed on off-balance sheet risks as well, e.g., for derivatives.
Asset valuation for solvency purposes is market-value based as prescribed in the OIC’s Notifications on the Valuation of Assets and Liabilities of Life Insurance Companies, and of Non-Life Insurance Companies (both 2011). The Notifications provide that assets are valued on a mark-to-market basis or, in the absence of observable market prices, on a mark-to-model basis. Assets for which a valuation method is not specified in the Notifications are valued according to the applicable recognition and measurement method specified in TFRS—see ICP 14 for general valuation aspects of TFRS).
Because TFRS are principles-based, and solvency reporting to the OIC is more prescribed, there are differences between the two bases of reporting. A prevalent example is with respect to technical provisions of life insurers, for which TFRS allows insurers discretion in applying principles, whereas solvency reporting specifies that such provisions (including risk margins) be established at a 75 percent confidence level over a one-year time horizon. For both assets and liabilities, differences between the two bases of reporting are publicly disclosed (see discussion on ICP 20).
During the development of the RBC framework, OIC realized that there was a potential procyclical impact from the market-based approach, especially when there is a sudden drop in the yield curve. In response, given that OIC is empowered by the LIA and NLIA, through its consultations with the industry, the OIC established a mechanism within RBC whereby the greater of the current yield curve or a smoothed yield curve over the prior eight quarters would be used.
To assure that technical provisions are backed by adequate and appropriate assets, limits on investments are prescribed in the OIC’s Notification on Investment in Other Businesses of Life and Non-Life Insurance Companies (the Notifications on Investment). The limits are identical for both life and non-life insurers, except that life insurers are permitted to invest in real estate projects whereas non-life insurers are not. There are three types of investment limits, covering counterparty, product, and issuer levels, each based on varying percentages of total investment assets.
The Notifications on RBC (for life and for non-life, both 2015) provide that insurers must have qualifying capital resources categorized into two tiers based on the following criteria:
Tier 2 capital resources include cumulative nonredeemable preference shares, and unrealized gains or losses of real estate and operating assets. There is a limit on Tier 2 capital, i.e., it may not exceed the amount of Tier 1 capital.
No debt may qualify as either tier of capital, no matter whether, or how, it may be subordinated to the rights of policyholders.
There are some deductions from capital resources, i.e., certain assets that might otherwise exist for TFRS purposes are nonetheless excluded as such in the OIC’s RBC framework. These include intangible assets, goodwill, and pledged or encumbered assets (except where the restriction on the use of the asset is required by law). In addition, group risk is addressed be excluding investments in affiliates from assets (and thus capital; likewise, the reporting entity does not include any capital requirements pertaining to such affiliated investments).
Neither deferred tax assets nor deferred tax liabilities are considered in the RBC framework. Off-balance-sheet commitments for operating leases, guarantees, and contingent liabilities also reduce available capital resources. Derivatives, which are allowed only for hedging purposes, are included and valued at market.
Regulatory Capital Requirements: Target Criterion, Solvency Control Levels and Triggers
The OIC’s RBC framework is a standard formula for determining capital adequacy for solvency purposes. It came into being over several years as part of an iterative and collaborative process between the OIC and stakeholders, involving quantitative impact studies, consultations, and the balancing of technical and business perspectives, including a comparison with existing capital requirements in other jurisdictions in the region.
RBC has been implemented in the Thai market since 2011, with the latest amendments made in 2015. It applies to companies licensed to operate life or non-life insurance business as well as branches of foreign insurance companies. The key objective of the OIC’s RBC framework is to protect policyholders’ interests by reducing the likelihood and impact of failure due to losses from material risks of the insurer. RBC is based on a standard model which considers the nature and relative complexity of insurance products in the Thai market. Alternative methods such as internal models are not permitted.
Technical provisions for valuation purposes in Thailand include a risk margin determined at a 75 percent confidence level over a 1-year time horizon. Required capital provides additional policyholder protection and covers an increment in the stated confidence level up to 95 percent, as well as covering certain other risks (e.g., credit and market risk). While supported by objective data and analysis, these measures also reflect expert judgment and negotiations between the OIC and stakeholders.
The OIC has established capital requirements on both a going concern as well as a gone concern basis using the Tier 1 and Tier 2 capital resource distinctions described above. On a going concern basis, the OICs CAR is key in determining the adequacy of an insurers’ capital resources and considers only Tier 1 qualifying capital resources. The CAR is intended as a prescribed capital requirement and is set at 140 percent of the minimum capital requirement (MCR) of 100 percent established under legislation. The MCR considers both Tier 1 and Tier 2 qualifying capital resources. In determining capital requirements for either the MCR or CAR, tax effects of balance sheet shocks are not considered, i.e., capital requirements are not reduced.
In addition, a capital floor has been established in the Notifications on RBC. The floor is THB 50 million in the case of life insurers, and THB 30 million for non-life insurers.
When an insurer’s CAR falls below 140 percent, the OIC prescribes necessary measures to monitor its financial standing, which measures cannot be altered by supervisory discretion. The CAR result is considered in assigning one of four supervisory risk ratings (see ICP 10 for a description of each rating level and its criteria, and the indicated supervisory response that would be triggered at each level).
The criteria to determine capital requirements by risk category is transparent, being spelled out in the Notifications on RBC.
Capital Assessment of Insurance Groups
With respect to group capital, there are no insurers licensed in Thailand which are groups for which the OIC is the group-wide supervisor. The OIC reviews group-level detail for Thai-domiciled insurers that are part of foreign groups or bank-led groups for which other supervisory are the group-wide supervisor. It also participates in supervisory colleges and other efforts to communicate and cooperate with the group-wide supervisor and other involved supervisors in the group (see sections herein on ICPs 23, 25, and 26). For capital purposes, the OIC’s RBC framework excludes from capital resources the reporting insurer’s investment in affiliates and does not include any capital requirement pertaining to the affiliate.
|Comments||Largely observed is based on the following observations:|
The supervisor sets and enforces requirements for the conduct of insurance intermediaries, to ensure that they conduct business in a professional and transparent manner.
Pursuant to Section 68 of the LIA, and Section 63 of the NLIA all agents and brokers need to be licensed. It is an offence to operate as an agent or broker without a licence in Thailand and such cases are referred to the Royal Thai Police for investigation. Cooperation with the police is good and there is no difficulty in pursuing prosecutions for contravention of licensing requirements.
Insurance agent and Insurance broker are defined terms under the NLIA and LIA. Licenses are for either life or non-life agents or brokers. Agents may hold separate life and non-life licenses as may brokers but a licenced broker may not hold an agent licence for the same sector. There are no exemptions from licensing (e.g., credit insurance, travel insurance) and Thailand has in excess of 400,000 licensed intermediaries.
In order to qualify for licensing, agents are required to pass a qualifying examination. The Thai General Insurance Association administers these for general insurance intermediaries. The Thai Life Insurance Association administers them for Life intermediaries. Additional examinations are required to be passed if the agent/broker wishes to sell more complex investment products, such as unit linked life insurance products. These examinations are set by Thailand’s SEC. The results are submitted to the OIC who issues the licences.
In addition to examination requirements, licensees must meet certain minimum suitability requirements set out in Section 64 and 67 of the NLIA and Section 69 and 72 of the LIA (e.g., basic fit and proper requirements). They are also required to meet ongoing education requirements once licenced. Initial licences are for a one-year term and at the third renewal (third year) licences are issued for a term of five years. Agents may represent up to two insurers with the permission of each insurance company. There are no corporate agency licenses for intermediaries and insurers are required to be jointly liable for the actions of their agents.
Individual Insurance brokers are required to meet requirements similar to agents in regard to qualifying exam and meeting minimum suitability requirements. Licence renewal provisions are similar to those of agents.
Thailand also issues corporate broker licences. To be eligible for this form of licence, at least two authorized directors with signatory power must pass insurance examinations set by the OIC and they must have held a personal insurance broker licenses for at least one year prior to applying for a corporate license.
Corporate brokers are also required to submit the details of their business plans (including governance and control systems with license renewal applications and are required to maintain a minimum capital fund (1,000,000 Baht – approximately $33,000 US). These rules are set out in Clause 14 of the Notification of Rules and Conditions for the Issuance of Licenses for Corporate Brokers, 2011. Bancassurance is conducted through corporate insurance broker licenses issued to distributing banks and can be for life or non-life products.
Personal indemnity insurance is not currently required for brokers or agents though many brokers purchase such insurance through the insurance association.
Agents and brokers are subject to license renewal processes. In addition, the OIC maintains risk based offsite, onsite, and targeted review programs for intermediary operations. It has a large supervisory team in head office in Bangkok but also substantial resources in 69 regional offices in 9 of Thailand’s provincial districts.
With respect to insurance brokers, OIC supervises more than 740 brokers. Approximately half of these are inactive licenses. During the last three years the OIC has conducted approximately 40–50 broker onsites per year. In prioritizing institutions and setting its program for onsite review, the OIC uses offsite reporting. The offsite process includes examination of premium information such as volume of premium, premium growth, premium accruals, complaint information, and any unusual transactions, or information that come to their attention during the year.
The onsite process looks at a number of risk categories including, sales conduct risk, operational risk, credit and reputational risk, liquidity risk, business entity (or governance) risk and other (e.g., AML/CFT, or use of personal information, know your client process, data storage, and continuity).
In examining agents, OIC focuses on complaints and on examination of whether insurers have adequate policies procedures, controls, and reporting over its agent distribution network. As many of the requirements for fair treatment of consumers are new, its supervisory program is evolving from a largely complaints-based focus to a more proactive focus involving fuller assessment of COB involving, fuller market analysis, offsite and onsite activity, and activities like mystery shopping.
With regard to Bancassurance, the OIC follows the general processes outlined above but with greater proactive focus. OIC actions include sampling of activities at branches, orders for the bank to clarify issues, more targeted inspections, and mystery shopping. Findings from Bancassurance supervision are shared with other group supervisors (e.g., BOT).
Intermediary Governance, Conduct, and Disclosure Requirements
For corporate insurance brokers and banks, the major requirements include:
For insurance agents, most of the governance requirements are set out as obligations on the insurance company in the Notification Re: Prescription of Rules and Procedures for Insurance Policy Issuance; Offering Insurance Policies for Sale by Non-life Insurance Companies; and Responsibilities of Non-life Insurance Agents, Non-life Brokers, and Banks, 2018. There is also a corresponding notification for life insurance. They include several obligations on the insurer:
Conflict of Interest and Disclosure of Remuneration
While intermediaries are required to disclose conflicts of interest there is little guidance on how to define or deal with perceived, potential or actual conflicts. In addition, there is no requirement for intermediaries to disclose the basis of their compensation or the amount of their compensation to their clients.
Client Money Handling
The Notification of Rules and Conditions for the Issuance of Licenses and Renewal of Licenses for Juristic Persons as Life Insurance Brokers, 2011 requires Brokers to have separate bank accounts for client moneys, and to forward client moneys to insurance companies as soon as possible.
The Notification “Rules for Agents and Brokers” for life insurance provides that upon the receipt of premium agents and brokers must issue a document evidencing the life insurance company’s receipt of payment. In the case of a broker, the company’s power of attorney for receipt of premium payment must be presented. These safeguards are also addressed in primary legislation under Sections 71 and 71/2 of the LIA and Sections 66 and 66/2 of the NLIA.
The Notification “Rules for Agents and Brokers” provides that agents and brokers need to deliver the application form and insurance premiums received from the client to the company at the first opportunity available, but no later than the following working day.
Insurance companies are expected to have internal controls in place to ensure these requirements are adhered to (mentioned above). They are checked as a matter of course during onsite inspections.
The insurance legislation provides penalties for major breaches of regulatory requirements. Where it is found that licensed agents and/or brokers have not acted in accordance with their license conditions, action is taken under Section 81 of the LIA and Section 76 of the NLIA, however, there is not currently a power to issue administrative orders to licensees, or the power to suspend licences. Our understanding is that legislation has been developed to remedy this problem, it has been passed by the legislature and that the proposal includes an increase in potential fines as well.
|Comments||Largely Observed is based on the observation that many of the COB conduct requirements for intermediaries are new and have not yet been fully tested in the market, and supervisory programs for brokers, agents and insurers are still evolving.|
It is recommended that:
|ICP 19||Conduct of Business|
The supervisor sets requirements for the conduct of the business of insurance to ensure customers are treated fairly, both before a contract is entered into and through to the point at which all obligations under a contract have been satisfied.
Major requirements with respect to conduct of business are found in the following Notifications:
The Notification 2018 requires that insurers and their intermediaries act with due care and diligence when dealing with policyholders and customers. Notification 2018 also specifies that fair treatment of customers must be an integral part of an insurer or intermediaries’ business culture. The Notification also requires that the outcome of fair treatment of customers be enshrined in an insurer’s policies and procedures with respect to intermediaries.
Pursuant to the NLIA and the LIA, the policy wording and premium range of new products needs to be approved by the OIC. The OIC conducts thorough consumer focused product reviews
Notification 2018 sets out the requirements for insurers and the process of developing and marketing products. These include the suitability to target customers, fairness of terms and conditions, the ability of customers to compare and evaluate products, the ability to the customer to understand the policy, and the provision of information and advice by the intermediary to the consumer.
There are different approval processes for different types of products. Most insurance products in Thailand, are common basic retail insurance products (e.g., simple endowment policies, term life, third party motor, and Casco). The OIC has developed and requires the use of standard policies for these. The standard policies are developed with the assistance of industry. The OIC approval process for non-standard products is more specific but is focused on the same consumer focused criteria.
Review of products helps ensure compliance with general conditions established in the insurance law, compliance with the Commercial and Civil Code, and to ensure that there are not adverse implications for policyholders.
Promotion and Marketing of Insurance Products
Notification 2018 requires that products be promoted in a manner that is fair, clear and not misleading. It sets out the procedures for insurers for promoting, selling and issuing insurance policies for sale.
The Notification of the Insurance Commission “Re: Specification of Rules and Conditions for Offering Insurance Policies for Sale through Advertising Media under the Law Governing Non-Life Insurance/Life Insurance, 2013” also set out rules and conditions on advertisement and illustration of products to ensure that they are not misleading.
During the product approval process (discussed above), attention is also paid to product promotion materials which are reviewed for suitability.
Timing, Delivery, and Content of Information at Point of Sale
Notification 2018 sets out both general and detailed requirements with respect to the timing, clarity and adequacy of pre-contractual and contractual information to customers.
These include such matters as the name of the insurer the type of product, key features of the product, significant/ unusual exclusions, the right to cancel and the right to complain. There are additional disclosure requirements for the more complex products and/or products of greater financial significance for policyholders, such as unit linked investment products.
The Notification 2018 provisions require the prompt delivery of policy documents. Many documents include summaries of key features and many life products include “cooling-off periods” (e.g., 15 or 30 days).
Customers Receive Appropriate Advice Taking into Account Disclosed Circumstances
Requirements for appropriate advice are also contained in the Notification 2018. A customer “fact find” is required to be carried out by intermediaries before selling more complex life insurance products to ensure they understand consumer needs.
According to Notification 2018, the responsibility of controlling the provision of advice by intermediaries is the responsibility of the insurer. The OIC onsite process checks that this function is being properly carried out by insurers and corporate brokers are similarly supervised.
The OIC also requires additional licencing requirements for intermediaries selling investment products to ensure that these products are being appropriately sold.
Conflict of Interest
Notification 2018 requires that for those entities and persons dealing with customers, conflicts of interest are to be avoided; however, (as noted under ICP 18), there is little available guidance on how to deal with potential perceived, or actual conflicts of interest.
Claims Handling, Complaint Handling, and Dispute Resolution
Claims handling, is covered under the Notification 2016 and a similar Notification for Life Companies. These Notifications detail the requirements for fair and transparent claims handling including (See Clauses 5–10):
Consumers also have access to complaint mediation and arbitration services through the OIC. Its is mandatory for insurers to participate in these processes but arbitrary for consumers to use them.
Servicing of Policies
The Notification 2018 requires that insurers must also have work systems, procedures and channels to deal with cancellation of policies and timely return of premiums.
Requirements Applying to Alternative Distribution Channels:
The OIC has considered how fair treatment requirements should be applied to distribution channels other than agents, brokers, and banks and, in particular, to the distribution of products through electronic means. The Notification on Offering for Sale of Insurance through Electronic Means sets out requirements for this area. These look to be broadly consistent with the ICP.
While insurers are required to adhere to strong requirements to protect consumer information in their possession, there do not appear to be strong requirements regarding the use of information for marketing purposes (e.g., the use of information gathered for the sale of one product for cross selling purposes).
|Comments||Largely Observed is based on the following observations:|
|ICP 20||Public Disclosure|
The supervisor requires insurers to disclose relevant, comprehensive and adequate information on a timely basis in order to give policyholders and market participants a clear view of their business activities, performance and financial position. This is expected to enhance market discipline and understanding of the risks to which an insurer is exposed and the manner in which those risks are managed.
|Description||The OIC’s first Notification on Public Disclosure became a regulation in 2008, requiring insurers to disclose their financial standing (balance sheet and capital status; key financial ratios); operating results (income and cash flow statements, direct premiums and percentage of premiums by type of insurance); paid losses; company contact information; and annual audited financial report.|
The 2008 Notification on Public Disclosure was repealed and replaced by a newer notification, effective October 1, 2018, which is intended by the OIC to be ICP 20compliant. It covers both quantitative and qualitative information about the company’s profile, business policies, objectives, and strategies; corporate governance framework and internal control processes; ERM and ALM; foreseeable and material underwriting risks that may affect the financial position, reinsurance management, interaction between capital adequacy and risk, and insurance risk concentration; value, methods and assumptions for determination of insurance liabilities; investments; business performance; capital adequacy and capital management; and audited financial statements.
Disclosures made pursuant to the 2018 notification have been tailored by the OIC to the nature, scale and complexity of Thai insurers and the local insurance marketplace. Moreover, they are intended to benefit the public, primarily consumers and policyholders. The OIC did not intend to replicate the detailed technical disclosures of the nature required in by the Securities and Exchange Commission in reports to investors; rather, to arrive at a means by which more basic and easily understood information could be gathered, accessed, and displayed in a comparable way across insurers to benefit the public. To that end, a template was developed by the OIC to assure a more means by which such disclosures by insurers can be made in a more comparable format.
Disclosed information must be up to date, reliable, comparable with other insurers operating in the same market, and include business trends. In addition, such disclosed information must be certified by the board and subject to review annually.
Commissioner’s Order 47/2561 (2018) for life insurance, and Order 48/2561 (2018) for non-life insurance, underpin the requirements of the Notification on Public Disclosure. These orders set out a template of the detailed information that is required to be disclosed publicly, on a quarterly and on an annual basis. The orders specify that information for year-end 2017 and for the first two quarters of 2018 was to be disclosed by November 1, 2018.
While most of the larger insurers licensed in Thailand are investees or branches of foreign-based groups, the emphasis on public disclosure is on the Thai-based operations and the assets held locally to the policy benefits and claims they back related to policies protecting Thailand-based insureds and personal and commercial risks. In other words, while consolidated statements of foreign-based groups may be informative and publicly disclosed, that alone would not be sufficient to comply with the requirements of the Commissioner’s Orders.
Thailand uses TFRS for general purpose financial reports, which Thai insurers are required to have audited and then publicly disclosed along with the auditor’s report thereon. Quarterly financial information, reviewed by external auditors as required by Clause 8, Registrar Order on Public Disclosure, must also be publicly disclosed, including an assessment of capital adequacy with the Capital Adequacy Ratio and its components of total capital available and TCR. In addition, listed insurance companies are subjected to additional disclosure requirements of Thailand’s SEC, e.g., regarding the operation of the business, management, financial status and operational results.
The Notification on Public Disclosure 2018, when considered with the Commissioner’s Orders, requires insurance companies to disclose quantitative and qualitative information about the following matters:
Methods, valuation and assumptions relating to insurance contract liabilities: This includes both valuation for financial reporting purposes (accounting basis), for solvency purposes, and the amount by which may differ (see section herein on ICP 14 as to why they there may be differences), showing specific components for life insurers, e.g.,, long-term technical reserves; short-term technical reserves; unpaid policy benefits; and due to insureds; and for non-life insurers (premium liabilities, and claim liabilities).
Capital adequacy, the policy, objectives and procedure of capital management, including capital adequacy evaluation: Information on statutory capital, total capital available, and the CAR must be provided on a quarterly basis, including total assets and liabilities; also the insurance contract liabilities; other liabilities; shareholders equity; CAR (percent); Total Capital Available (TCA); and TCR.
Investments, including investment policy and objectives: Insurers are required to disclose valuations including underlying assumptions, both for financial reporting and capital adequacy reporting; policies, objectives and investment procedures; and approaches to valuations of capital assets. Amounts by asset class must be separately stated, i.e., for deposits and certificate of deposit; debentures (government bonds, corporate bonds, promissory note, bills of exchange, convertible bonds, and saving certificates); investments in subsidiaries and affiliates; equities; unit trusts; policy loans; loans (including vehicle hire-purchasing loans); warrants; derivatives; and other investments.
ERM including ALM: Insurers must provide an overview of their risk management policy and procedures, methodologies for measuring assets and liabilities for ALM purposes, and an asset-liability adequacy analysis with duration matching.
Financial performance: Disclosures are required with respect to business performance, investment results, claims statistics and claim development, and adequacy of insurance premium, together with relevant analyses. Amounts to be reported include gross and net premiums written; net investment income; technical reserves and changes from the previous year; net claims; net profit/loss; underwriting expense ratios both for first year and renewal business; ROE; return on assets and return on investment ratios, both including, and excluding, unit-linked and universal life business; investment assets; and policy reserves (valuation for solvency purposes).
Relevant material insurance risk exposures and management: Insurers must disclose quantitative and qualitative information about underwriting risk, reinsurance management including risk retention criteria and other forms of risk transfer; risk concentration; interactions between capital adequacy and risks; and loss forecasting methods used.
General information about the company: This includes information about the company’s profile and history; policy, objectives and business strategy including about the external environment in which the company operates; business characteristics including key services and products and the degree of product/service diversification and specialization; and company contacts and claim settlement procedures.
Corporate governance framework and internal controls: Required disclosures include a description of such framework and controls; the organization structure/organization chart; management structure including positions and responsibilities of the board and senior management; board committees and their responsibilities, including committees overseeing the audit, risk management, and investment functions as well as the nomination, compensation and other committees, if applicable; directors, including independent directors, executives, and their respective qualifications and remuneration.
The OIC monitors such disclosures on insurance companies’ websites on a quarterly basis and notifies insurers to correct any deficiencies that have been identified.
|Comments||The notifications do not explicitly require certain disclosures that are contained in the ICP 20 principles. For example, the notifications do not explicitly require reporting of information concerning the key assumptions employed in measuring assets and liabilities for ALM purposes and any capital and/or provisions held as a consequence of a mismatch between assets and liabilities; financial performance by segment.|
It is therefore recommended that the OIC amend the notifications to address, at a minimum, all the risk and factors covered by the principle statements of ICP 20. Also, the OIC’s reliance on TFRS and audited financial statements as a backstop for its own public disclosure requirements results in a bifurcated disclosure approach; the OIC should consider revising its disclosure requirements to apply more broadly and explicitly to any risk arising from insurance contracts.
|ICP 21||Countering Fraud in Insurance|
The supervisor requires that insurers and intermediaries take effective measures to deter, prevent, detect, report and remedy fraud in insurance.
|Description||All fraud, including insurance fraud, is covered by the Criminal Code (Sections 341 to 347), the Civil and Commercial Code (Sections 879 and 895). Sanctions and penalties are addressed by the Criminal Code, consisting of fines, imprisonment or both. Such penalties are imposed on the person or entity having committed the fraud, i.e., the insurer is not penalized for having incurred losses resulting from fraudulent actions of others taken against the insurer.|
Section 43 of the NLIA provides that a responsible investigating officer under the Criminal Procedure Code can request the OIC to order an insurer to suspend payments involving suspicious claims pending an investigation. An insurer that fails to comply with the OIC’s order can be fined up to THB 500,000. In addition, further fines can be levied up to THB 20,000 for every consecutive day that the violation continues.
In Thailand, insurance-related fraud primarily relates to staged accidents and thefts to claim motor insurance, false claims for medical fees and hospital benefits (which industry data has shown to cost the industry nearly THB 246 million from 2014–2016); premiums diverted by licensed intermediaries as well as others posing as intermediaries. To more effectively address such fraudulent activities, the OIC worked to amend the LIA/NLIA through bills that were passed by the Parliament on February 14, 2019, which will become effective approximately six months thereafter. Amendments covering insurance fraud activities include:
OIC meets regularly with the insurance industry through the Life Insurance Association and the Non-Life Insurance Association to collect information on activities related to insurance fraud and to analyse the characteristics of such activities in order to create a coordinated approach from both OIC and the insurance industry to such matters. Representatives of the associations indicate that they collect data from members about fraudulent activities of agents.
A committee has been established of insurance industry representatives (Life Insurance Association, Non-Life Insurance Association, Insurance Agent Association and Insurance Broker Association), the Chief of Royal Thai Police, and the Council of Lawyers and Economic Journalists, to established plans and approaches to dealing with fraud when the recently adopted LIA/NLIA amendments are in effect and can be enforced. After its first meeting in June 2018, the committee agreed to issue a fraud prevention handbook by early 2019 to enhance fraud awareness of the public.
The OIC also engages with Thailand’s private sector Collective Action Coalition Against Corruption, and encourages all life and non-life insurers to be CAC members and to adopt CAC’s Fraud Risk Management Framework.
The Notification on Fraud Risk Management 2018 prescribes the procedures and measures to manage the risk of insurance fraud, including management’s responsibility to oversee the effectiveness of fraud risk management systems. It requires insurance companies to establish a fraud risk management policy including procedures and measures to deter, prevent, detect, report and remedy fraud in insurance and which covers both internal fraud and external fraud (policyholder/claims fraud and intermediary fraud). The policy must be communicated throughout the entire organization to provide operational guidance to all staff. Insurers must regularly review the effectiveness of their policy, taking into account changing internal and external circumstances, as well as lessons learned from incidents of actual or suspected fraud, to enhance its management of fraud risk. The policy must be part of the company’s risk management framework required in the Notification on Risk Management 2017.
The Notification on Fraud Risk Management 2018 provides that insurers establish fit and proper standards for members of the Board, senior managers and other staff, and intermediaries; client acceptance procedures including Know Your Customer and Customer Due Diligence (CDD); claim assessment procedures to mitigate the risk of claims fraud; guidelines on outsourcing; a whistleblowing policy and adequate legal protection for fraud reporting in good faith monitor performance and trends with a view to detecting intermediary fraud; develop a code of conduct for its employees and establish an ethical culture; and provide regular training on fraud matters for board members, senior management and other staff as appropriate.
More specifically regarding whistleblowing, the notification requires insurers to “establish whistleblowing rules and procedures and provide legal adequate legal protection for fraud reporting in good faith to encourage stakeholders from within and outside the company to report clues in the event of fraud.” That said, whistleblowers are not provided immunity under Thai law.
The Notification of Fraud Risk Management 2018 will go into effect July 2019, although Thai insurers have been anticipating and preparing for its enactment. It requires insurance companies to assign suspected fraud cases to designated person(s) for review and investigation. Sound fraud investigations are to be conducted by appropriate personnel, independent of the business unit in which the alleged fraudulent conduct has occurred. Incident reports must be provided to the audit committee on a quarterly basis. In case of any fraud or act with a potentially material impact to the financial position, business or reputation and operating results, the audit committee must report it to the board of directors for rectification. The report also is it be submitted to OIC unless there is any action to recover such material fraud events in a timely manner.
Pursuant to the same notification, insurance companies must establish and maintain a fraud database; monitor and review its fraud risk management annually; submit a three-year business plan and risk management policy to OIC; and conduct internal reviews of their fraud prevention scheme. Notably, the requirement for insurers to collect fraud data is a key element, as the OIC has powers to act against fraud if evidence exists.
The OIC has the means to access data from individual insurers’ fraud databases on a consolidated platform. Resources to address fraud are within the OIC’s litigation unit, which includes three full-time staff, supplemented by a multi-departmental OIC committee. Finally, OIC’s onsite inspections check for compliance with the aforementioned fraud risk management requirements.
|Comments||Largely observed is based on the following observations:|
|ICP 22||Anti-Money Laundering and Combating the Financing of Terrorism|
The supervisor requires insurers and intermediaries to take effective measures to combat money laundering and the financing of terrorism. In addition, and the supervisor takes effective measures to combat money laundering financing of terrorism.
|Description||The Anti-Money Laundering Office (AMLO) is designated as the AML/CFT supervisory authority in Thailand since the amendment of the Anti-Money Laundering Act (AMLA)3 in 2013. Sections 40)3/1( and )4( of AMLA prescribe AMLO as the main state authority entrusted with AML/CFT regulation and supervision to establish guidelines, examine, monitor and evaluate implementation of AML/CFT obligations in cooperation with sector-specific supervisors (BOT, SEC, and OIC). Financial institutions must comply with the regulations of both the OIC and other regulators, including AMLO’s AML/CFT regulations:|
While the AMLO is the designated AML/CFT competent authority, the OIC, as a supervisor, needs to be aware and have an understanding of ML/FT risks to which insurers and intermediaries are exposed, liaising with AMLO as necessary and with effective mechanisms in place which enable it to cooperate, coordinate and exchange information with other domestic authorities, including in other jurisdictions, for AML/CFT purposes. In that regard, OIC utilizes an onsite examination checklist for underwriting and money receiving processes to determine if insurers have effective preventive measures in place as required by AMLO.
Thailand participated in the World Bank’s National Risk Assessment on AML/CFT focusing on AML/CFT threats and vulnerabilities of Thailand in 2013. OIC participated in both assessments and provided opinions on the draft of the assessment.
Thailand participated in a Mutual Evaluation of International Standard on AML/CFT by the Asia/Pacific Group on Money Laundering (APG). APG’s report, published December 2017, reported that insurance presented the lowest money laundering and terrorism financing risks of the financial sectors subject of the study.
OIC appointed staff to take part in the AMLO’s sub-committees in order to adopt strategies more efficiently. In addition, OIC has cooperated with AMLO on drafting an insurance Sector Risk Assessment on AML/CFT which concluded that the risk and vulnerability of insurance sector and control measures is low.
OIC supports AMLO in protecting the insurance industry from ML/TF threats by enhancing insurers’ awareness of such risks and enforcing the adoption of AML/CFT measures into insurers’ operations.
The OIC enforces fit and properness of managers, executives and directors through various regulations, for example, in the application process for an insurance business license, maintaining qualifications of such persons as well as consultants throughout the tenure of their positions with the insurer, and specifying conditions—including having been sentenced under the Anti Money Laundering Act—that would result in any such individual being deemed unqualified to continue to act in such a position.
OIC requires insurers to adopt the following AML/CFT measures through their operations:
To enhance insurers’ awareness on AML/CFT threats to the industry, both OIC and the industry have held seminars and workshops. OIC participates in various AMLO subcommittees and working groups, including on AML/CFT national strategy; financial institutions supervision; Thailand mutual evaluation on AML/CFT standards preparation; coordination for AML/CFT risk assessment; supervision of AML/CFT reporting entities; and on the integration of AML/CFT compliance of reporting entities.
|ICP 23||Group-wide Supervision|
The supervisor supervises insurers on a legal entity and group-wide basis.
|Description||From the perspective of group-wide supervision, the 83 insurance entities operating in Thailand can be viewed as comprising several categories:|
OIC has participated in supervisory colleges involving five of the foreign investee insurance entities in Category 1, hosted by group-wide supervisors in Australia, Hong Kong, and Japan. For some of the insurers in Category 1, the Thai operations are not significant to the overall group and therefore the OIC does not formally participate as a participant in the supervisory college, however it communicates and coordinates with the group-wide supervisor and other involved supervisor on an ad hoc basis as necessary. For the colleges in which the OIC does participate, it assists the group-wide supervisor in determining the scope of group-wide supervision.
In the case of the subject financial conglomerates in category 2, in each case the BOT is the group-wide supervisor and has established a supervisory college in which the OIC participates. In supervising the insurance companies of the financial conglomerates, OIC works closely with BOT and SEC, including determining the scope of group-wide supervision and reviewing group risk profiles. There is a three-regulator steering committee (OIC, BOT, and SEC) with subordinate working groups of supervisors involved in specific topics to exchange information and discuss issues. All group entities have been identified, including those entities which are not directly regulated. The roles and scope of supervision are discussed through these forums.
OIC, SEC and BOT also closely coordinate and exchange information regarding regulated entities within a financial conglomerate during inspections. BOT discusses issues with OIC and SEC before carrying out inspections and invites OIC and SEC to participate in meetings with the financial institution regarding findings and recommendations resulting from inspections. The inspection of the insurer is however handled by the OIC. Informal arrangements are also in place between the supervisors BOT, SEC, and OIC, with the management of financial conglomerates, so that all entities are effectively able to be supervised.
Beside the three-regulator committee meetings and supervisory colleges, BOT, SEC, and OIC also communicate on an extensive array of supervisory issues, e.g., potential mergers and acquisitions, and market conduct issues relating to bancassurance.
BOT considers each financial conglomerate at 2 levels:
A Thai insurance company may have subsidiaries or affiliated entities involved in activities tangential to the business of insurance (e.g., insurer broker, or fund manager) as prescribed in the Notification on Investment. If it desired to hold more than 20 percent of the total equity of the investee, it would require prior OIC approval and, if approved, the OIC would then also subject those entities to its supervision. However, there is an aggregate cap in that such investments may not exceed 15 percent of the company’s total assets. Also, the insurance company is required to submit financial statements of such investees annually and prepare and submit any information or data to OIC upon request. The insurance company must inform OIC on a timely basis when there any significant circumstances arise involving the investees, especially cases that may affect the company’s position and reputation. In a case of ASEAN insurance company and a holding company of ASEAN insurance company, the insurance company must inform OIC if those companies are ordered to take actions by home supervisors.
|Comments||The OIC does not serve in the capacity of a group-wide supervisor for any groups. As an involved supervisor it cooperates and coordinates with the BOT as the group-wide supervisor of Thailand-domiciled financial conglomerates, and with insurance supervisors in other jurisdictions who serve as group-wide supervisors for groups operating on a cross-border basis in Thailand through investment in local insurers or through branches.|
|ICP 24||Macroprudential Surveillance and Insurance Supervision|
The supervisor identifies, monitors and analyses market and financial developments and other environmental factors that may impact insurers and insurance markets and uses this information in the supervision of individual insurers. Such tasks should, where appropriate, utilize information from, and insights gained by, other national authorities.
|Description||OIC’s Insurance Stability Policy Department performs macroprudential surveillance. This includes collection and analysis information on a quarterly basis.|
On a microeconomic level, this includes size and business volume indicators of insurers, earnings trends, capital adequacy and leverage, underwriting performance, investment composition and performance, reinsurance exposure, liquidity, as well as general market characteristics. The primary data source are quarterly financial reports required of each licensed insurer which are electronically submitted to the OIC where they are housed in its financial repository and can then be accessed for various analysis purposes via XML.
On a macroeconomic level, data collection and analysis include GDP statistics, unemployment rate, inflation rate, exchange rate, bank sector exposure measures, fiscal balance, as well as risk indicators for credit and market risk, and insurance market measures.
Cross sectoral data is also considered, including exposure of insurers to other financial institutions such as banks, and to identify channels of transmission or amplification of systemic risk and to assess risk of Interconnectedness of insurers to other parts of the broader economy.
A set of over 50 quantitative risk indicators is collected and aggregated into an Insurance Stability Dashboard, which forms the basis of OIC’s macroprudential surveillance framework. The Dashboard enables a quantitative assessment of key risks across the sector with criteria to display (e.g., traffic light) as being of lower, medium or higher risk. Moreover, it enables a side-by-side comparison of the risks of any selected insurer to the risk profile of the sector overall.
The scoring methodology for calculating risk considers historical trends as well as the absolute level of risk in the current environment through threshold and horizontal reviews. Historical trends, volatility, current risk environment and other supervision targets are considered in the market analysis to determine the current risk level.
Specific emphasis is given to data on the insurance market and sector trends that could potentially result in shocks to the wider financial system. The framework recognizes cross disciplines and sectoral effects through consideration of the Interconnectedness of insurers to other industries.
Outcomes of market analysis are applied to the development of adverse but plausible forward-looking scenarios in stress test exercises due to the quantitative and widely-used nature of these risk indicators. Interest rate risk is considered the most significant risk factor for life insurance sector, as is catastrophe risk for the non-life sector. Five stress tests are conducted with OIC-prescribed top-down scenarios where both factors had been included. The scenarios tested include a macroeconomic scenario, financial crisis scenario, pandemic scenario for life insurers, catastrophe and flood scenarios for non-life insurers, and interest rate reduction reverse stress scenario (i.e., the minimum interest rate at which the insurer remains able to meet solvency requirements). Insurers also perform stress tests using their own bottom-up scenarios. All the test results currently indicate a high tolerance of the insurance system to stress factors with little to no spillover effect to other financial sectors.
OIC also conducted internal stress tests of the life insurance sector in 2016 out of concern for the rapid reduction in interest rates seen in the second quarter of that year. Stress test results showed the overall capacity of the industry to tolerate still lower interest rates without signs of risk of systemic impact to the insurance system. However, a few insurers showed potential adverse solvency positions and were required to discuss with the OIC their strategies to handle the situation and any recovery plans, if necessary.
OIC has regular communications with insurers’ senior management on stress test results, and overall results are publicly available on the OIC’s website. OIC requires insurers to present the stress test results, recovery plan and risk reduction strategies to the board of directors and to submit the minutes of the board meeting to OIC.
Studies on the impact of the financial stability of the insurance market are carried out on an annual basis by a financial stability working group consisting of executives from the BOT, OIC, and SEC. The results of the studies are then used to produce an annual Financial Stability Report (FSR) that contains an overview and future outlook of the overall financial sector as well as focused discussion on the banking, securities, and insurance sectors. The FSR is made publicly available on the OIC website.
OIC also regularly publishes overall insurance market data on the OIC website on a monthly or quarterly basis, depending on the frequency of data submission. The OIC website also has links to other related agencies and organizations (e.g., MOF, BOT, SEC, TLAA, TGIA) with data regarding the insurance market, other financial sectors’ data and macroeconomic data, as well as links to each insurer’s financial data.
OIC coordinates with other regulatory bodies under through various fora:
OIC assesses the systemic importance of insurers based on the key factors of size, interconnectedness, asset liquidation, and substitutability, and generates a score that distinguishes between insurers with risk scores below a set threshold for which no further analysis is warranted unless at the discretion of OIC, from those with risk scores above the threshold and will be further analysis is deemed warranted. The process is modeled in part on the G-SII methodology of the IAIS, but tailored for the size, scale and nature of the local market. The results of the overall assessment are approved by the board of OIC. The assessment process was developed in 2017 will be carried out annually; two years of data is taken into account before confirming subsequent changes to an insurer’s systemic rating status.
Results indicate that no insurer is, or has been, systemically important to the wider financial or insurance systems in Thailand.
|ICP 25||Supervisory Cooperation and Coordination|
The supervisor cooperates and coordinates with other relevant supervisors and authorities subject to confidentiality requirements.
|Description||(As a precursor to this description of ICP 25 for Thailand, see ICP 23 for a profile of the insurers subject to OIC oversight from the perspective of group supervision and involvement by the OIC in supervisory colleges, and ICP 3 regarding information sharing in supervisory colleges.)|
Building on the description in ICP 23, the most important supervisory colleges in which the OIC participates and from a Thai market perspective involve the cooperative efforts with the BOT involving six domestic financial conglomerates, and with the Hong Kong Insurance Authority and Japan’s Financial Services Agency as group-wide supervisors of insurance groups that include Thailand’s largest life insurer (a branch of a Hong Kong-based insurance group) and three of its largest non-life insurers, respectively.
Arrangement with the BOT
The BOT supervises financial institutions that can be part of financial conglomerates, which may include insurance companies supervised by the OIC. Various arrangements have been established to facilitate coordination between the BOT and the OIC as well as with other involved authorities including the SEC, and AMLO. High-level cooperation emphasizes policy-making decisions, and has been achieved through cross-directorships, the Financial Institutions Policy Committee (FIPC), and the 3-Regulators Steering Committee
Working-level coordination emphasizes execution and information exchange:
The OIC has participated in the supervisory colleges of five foreign-based insurance groups that operate in Thailand: QBE Group (however QBE has now exited the Thai market), AIA Group, Tokio Marine Group, MS & AD Group (Mitsui Sumitomo Insurance Group, Aioi Insurance Company, and Nissay Dowa General Insurance company) and FWD group (FWD Life Insurance Company). While significant to the Thai market as measured by domestic market share of assets, the Thai-based operations of these groups are nonetheless relatively minor to the respective group overall. Within this context, OIC’s role in the five colleges as a host supervisor involves sharing supervisory concerns and providing information on group structure, risks and incidents that might require capital injection from the head office. To support these efforts, OIC has signed an MOU with supervisory authorities in Japan and Hong Kong.
OIC has also signed MOUs with insurance supervisors in other jurisdictions, for various purposes, including to communicate and coordinate in respect of Thai insurers that are part of foreign groups but for which the OIC is not a member of the supervisory college; to receive training and consultation services; and to share information regarding fit and proper aspects of potential directors and executives. These include supervisory authorities in the United States, Canada, Germany, South Korea, China, Laos, Malaysia, Cambodia, Brunei, and Myanmar. The OIC is not currently a signatory to the IAIS MMOU but indicates it intends to sign in the near future.
Also, OIC has mechanisms to coordinate with other supervisors who do not have an MOU or supervisory college with OIC, such as Singapore, and some ASEAN countries with high reinsurance volume from Thailand, executives working in both countries, or in which a Thai insurance company has a large investment. These include an annual meeting such as the ASEAN Insurance Regulators’ Meeting & ASEAN Insurance Council Meeting, where insurance supervisors in ASEAN countries share matters of concern.
The OIC is also an active member of AITRI, the association of SE Asian supervisors, and regularly hosts meetings in order to further supervisory regional education on topics of mutual interest. The OIC will host the next meeting in April 2019, on microinsurance.
Arrangements with the international supervisory colleges cover communication, information flows, and meeting frequency. During meetings, information is shared, and group assessments are carried out. There are Terms of Reference, e.g., for the AIA supervisory college the terms cover the objectives, membership, roles of the group-wide supervisor and host supervisors, meetings among members, scope of activities of the college, confidentiality, and crisis management. The arrangements of the supervisory colleges require at least annual face-to-face meetings or conference calls, however other communications occur on an ad hoc basis as needed.
|ICP 26||Cross-border Cooperation and Coordination on Crisis Management|
The supervisor cooperates and coordinates with other relevant supervisors and authorities such that a cross-border crisis involving a specific insurer can be managed effectively.
|Description||(As a precursor to this description of ICP 25 for Thailand, see ICP 23 for a profile of the insurers subject to OIC oversight from the perspective of group supervision and ICP 25 for discussion of the OIC’s efforts to cooperate and coordination with other supervisors, including through supervisory colleges. The following description supplements that specifically with respect to crisis management.)|
As noted in ICP 25, only a handful of foreign-based groups have operations in Thailand that are considered significant to the OIC from an overall market perspective. Even so, the OIC largely relies on legal entity supervision and ring-fencing of funds in Thailand to protect local policyholders. The OIC cooperates with supervisors from various countries and in supervisory colleges established by some of the foreign supervisors to exchange information and engage in discussions to improve the effectiveness of the insurance groups’ supervision, including with respect to issues that might arise involving crisis management. Through these activities, the involved supervisors develop a shared view of the respective group and become better prepared for a coordinated effort in the event of a crisis. Whether an insurer is the subject of a college or not, in all cases OIC has the power to request them to send any plans or documents, pursuant to Section 48 of the LIA and Section 51 of the NLIA.
There are two insurance groups that have been identified by the IAIS and the FSB as globally systemically important insurers (GSIIs) and, as a result, their respective group-wide supervisor must oversee a crisis management group. However, the Thai-based operations of those groups are quite small relative to that of other jurisdictions in which they operate, and as a result the OIC does not participate in those CMGs.
Reference is also made to ICP 24 and the work that has been underway by the OIC to evaluate if any domestic insurer is systemically important to the Thai economy. The current conclusion is that no insurer currently meets that criteria; ongoing efforts will continue to assess insurers to see if that changes in the future.
As a practical matter, given the profile of the foreign-based insurance groups operating in Thailand, the OIC’s role as an involved supervisor rather than a group-wide supervisor in respect of any such group, its focus on legal entity supervision and ring-fencing of funds to protect Thai policyholders, crisis management has largely been focused on risks specific to the Thai market, including the impact of the low interest rate environment primarily on life insurers, and the risk of catastrophes on non-life insurers. While there are some cross-border aspects to each involving the subject groups, the concern is primarily a domestic issue. For example:
2011 Flood in Thailand
The crisis presented an immediate issue because of concerns about AIG and, by extension, about its subsidiary, AIA, Thailand’s largest life insurer. OIC and the MOF established an emergency economic resolution committee to oversee the situation and plan measures to deal with the public on this situation, including conducting teleconferences with foreign regulators including in the USA and Hong Kong to regularly to update information. Because AIA operates in Thailand through a branch whose assets are held on deposit with the OIC or with Thai trustees, and because the source of AIG’s problems did not involve its Thailand or Hong Kong operations, the issue was largely one of educating the public. In due course, AIG spun off AIA which is now a separate company headquartered in Hong Kong.
|Comments||Partly observed is based on the following observations:|
The Authorities’ Response to the Assessment
53. The Office of Insurance Commission, Thailand (OIC) has appreciated the opportunity to have been assessed against the IAIS Insurance Core Principles. The OIC would also like to express its gratitude to the World Bank, the IMF and the Assessors for their understanding and the fruitful exchange of views throughout the assessment process. The entire process has provided an opportunity for the OIC to thoroughly review the insurance regulatory framework of Thailand and pave ways for further improvement.
54. The OIC agrees with the Assessors’ comments and observations. The OIC also agrees with the recommendations contained in the report, which will be put into practice over the coming years. The implementation of many of the Assessors’ recommendations will help the OIC make insurance supervision even more effective.
55. The Thai government’s policy of supporting the insurance supervisor’s independence is apparent and significantly contributes to the maintenance of a fair, safe and stable insurance sector for the benefit and protection of policyholders. Even though, the OIC has a close relationship with the Government, it has never occurred that the government has interfered with the OIC’s policies, operations or the supervision of the insurance sector.
56. The OIC is currently amending the Non-Life Insurance Act (NLIA) and the Life Insurance Act (LIA) to improve supervisory legislations to align with international standards.
The latest amendments of the NLIA and the LIA, were approved by the National Legislative Assembly in February 2019, increasing the enforcement powers of the OIC over intermediaries. In addition, there are other NLIA and LIA amendments, approved by the Cabinet in November 2018, addressing other shortcomings such as the OIC ‘s power to approve changes in control, improvement of preventive and corrective measures, and specification of a clear point at which it is no longer permissible for an insurer to continue its business.
57. With respect to recommendations on new insurance regulations, the OIC is committed to ensure the effectiveness of these requirements by working closely with industry and related stakeholders in order to achieve these objectives and enhance the overall performance of the insurance industry for the benefit and protection of policyholders.