Thailand's insurance sector steadily liberalises


A series of notifications and amendments related to foreign ownership in the Thai insurance sector has seen the market become more liberalised at a rapid pace. Four reforms have been mandated by the government in recent years, and as of mid-2017, another was in draft form. In part, the adjustments reflect country’s favourable stance towards liberalisation, especially in light of the imminent creation of a single financial market in the ASEAN Economic Community, which comes into force in 2020.


The moves also suggest that the authorities want to reduce bureaucratic impediments and that they believe the insurance regulator is up to the task of overseeing more of the sector’s development of the sector. Importantly, the moves indicate a general understanding that more capital and better management are needed in the sector if it is to be ready for major natural disasters, such as the floods that hit the country in 2011. However, while the regulators have focused on easing foreign ownership restrictions with reforms issued in 2015, 2016 and 2017, the hard percentage limits have more or less remain unchanged. Most of the reforms have been incremental, simplifying and rationalising the process rather than further opening the market.

Once the new life and non-life insurance laws which are currently in draft form are passed, this could change significantly, but until then, access to the market is very much as it has always been: based on a subjective assessment as to whether the investment is good for the country and the sector and whether the applicant is the right kind of company. THE 0.01%: Foreign ownership limits have been the target of liberalisation for some time. In March 2015 amendments were made to both acts governing the sector with regard to these limits. According to analysis by Clifford Chance, the requirement that a parent or a holding company of a Thai insurer be majority owned by Thais was removed, and the foreign shareholding level permissible without regulator approval went from “less than 25%” to “up to 25%”. The amendments also expand the criteria that enable foreign ownership of companies to exceed 49%. The Ministry of Finance will now consider cases in which the financial position of a local insurer endangers policyholders or the public, and cases where the investment would strengthen the company or the sector in general. Companies seeking more than 49% of the equity would have to make an investment of at least BT500m ($14m) in the target company. Attorneys analysing the amendments noted at the time that an acquisition was still a risky proposition, as the application process might be burdensome and the Ministry of Finance might place additional requirements on the applicants. They added that the 0.01% increase still does not allow the foreign shareholder to block resolutions.

Off The List

A more significant step was taken in 2016 when insurance was removed from the list of restricted sectors requiring a foreign business licence from the Ministry of Commerce for investments that acquire over 50% of a company. The change was made to the Foreign Business Act, and the insurance acts continue to govern foreign participation in the sector. The situation remains much as before: acquirers could buy 25% without regulator approval, purchases of 25% to 49% require approval from the Office of Insurance Commission (OIC), while the Ministry of Finance must approve foreign investments above 49%.

A notification was also issued at the time clarifying the standards for investments under 49%. OIC permission could be granted if the local company was sufficiently capitalised and if it had a business plan demonstrating that the participation of the foreign entity would improve its operations in terms of efficiency or competitiveness. The notification furthermore set out requirements for any foreign entity wishing to buy more than 10% of an insurer. Such firms must be in the insurance business or part of a group active in the industry, have strong financials and sound operations, have insurance expertise, have a strong network and a clear business plan for the Thai investment. The foreign entity may control up to half the board directors, but it would also have to apply for that permission. An example of a transaction of this kind is the 2016 acquisition of 40.26% of Thaisri Insurance by Germany’s ERGO Group. An analysis of the transaction suggests the OIC approved this transaction, in part, because it felt the local underwriter would benefit from the foreign company’s technical expertise.

A majority shareholding would still only be granted by the Ministry of Finance as a last resort and under very special circumstances, for example if the Thai firm might have to cease operations if the investment did not take place. In the past, the ministry has approved a number of shareholdings above 49%. AXA, Sompo and Tokio Marine received permission in 2011 to take a majority stake in their subsidiaries because flooding in Thailand that year required recapitalisation. All three eventually went above 99% ownership. The local shareholders did not have the capacity or the interest to take more risk, so the ministry was compelled to approve the increases.

Another Step

Another significant step was taken in 2017. In January the Ministry of Finance published notifications that provide more guidance on the process of taking various levels of control. Foreign insurers applying to hold more than 49% ownership and over half the board of a local provider must have capital adequacy ratios that meet OIC requirements, and a business plan that outlines how its participation will contribute to the stability of the sector or to the targeted company. The acquirer must already be engaged in the insurance business and it must have been active for a decade. It or its parent must be rated and the rating must be higher than “A”. Within 90 days of receiving an application, the OIC must make a decision and pass the application to the Ministry of Finance. The ministry then has 90 days to make its own decision. If approved, a non-life company must maintain capital of BT1bn ($28.2m) while a life company must have BT4bn ($113m). The Ministry of Finance reserves the right approve any future change in shareholders.

Critics argue that the latest notification offers very little. They say that the foreign ownership limits remain the same, with modifications affecting only the procedures to make an application at various ownership bands. They point out as well that even companies that meet the eligibility requirements are not guaranteed approval. But the notification was considered positive for the sector, especially because it mandates clear timetables for approvals.

Draft Law

Real reform will come with the passing of a new Life Insurance Act and a new Non-Life Insurance Act. Drafts were published in early 2016 and suggest that foreign entities will be able to own up to 50% of a local insurer automatically. The requirement to get approval from the OIC for investments above 25% has been removed altogether, though Ministry of Finance approvals are still needed to invest more than 50%.

Analysis suggests that approval from the ministry for a shareholding above 50% could soon be offered for a wider range of reasons than in the past. The insurer does not have to be close to failure, for example. Instead, the acquirer simply has to show that the target firm, its policyholders or the sector at large would benefit from the transaction. Significantly, an acquirer is not considered foreign if it is locally incorporated and more than half its shareholders are from a country with which Thailand has a relevant bilateral treaty. More entities could thus be deemed local for the purposes of an acquisition.


You have reached the limit of premium articles you can view for free. 

Choose from the options below to purchase print or digital editions of our Reports. You can also purchase a website subscription giving you unlimited access to all of our Reports online for 12 months.

If you have already purchased this Report or have a website subscription, please login to continue.

The Report: Thailand 2017

Insurance chapter from The Report: Thailand 2017

Cover of The Report: Thailand 2017

The Report

This article is from the Insurance chapter of The Report: Thailand 2017. Explore other chapters from this report.

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart