## EXECUTIVE SUMMARY ## Source details **Canonical URL:** [EXECUTIVE SUMMARY](https://www.imf.org/-/media/files/publications/cr/2019/1thaea2019005.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1thaea2019005.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1thaea2019005.pdf.json) --- ### Overview and key statistics - Insurance sector assets: from 10 percent of gross domestic product (GDP) in 2006 to over 22 percent of GDP in 2016; constitutes 9 percent of total financial industry assets. - Gross premiums written: average annual growth approximately 16.9 percent between 2008 and 2017; nominal GDP growth 9.9 percent over the same period. - Insurance penetration ratio (premiums written to GDP): 3.63 percent in 2008 to 5.39 percent in 2017. - Assessment period: conducted from February 6 until February 22, 2019. - Benchmark: Insurance Core Principles (ICPs) issued by the IAIS in October 2011, including revisions authorized up until December 2017. ### Recent supervisory developments and improvements - Major initiatives and improvements (last seven years): - Development and retention of a strong, effective supervisory staff. - Governance and internal control requirements. - A risk based supervisory framework. - Capital adequacy, valuation, reserving, investment, and reinsurance requirements. - A well-developed macroprudential framework. - Improvements in information exchange and cross-border cooperation. - New requirements (recently commenced; implementation ongoing): - Enterprise risk management. - Regulation and supervision of intermediaries. - Conduct of business regulation. - Note: Full assessment of recently introduced areas is premature because some requirements only recently came into force and implementation is still underway. ### Remaining challenges and prioritized recommendations - Governance, legal powers, and independence - Consider vesting more supervisory authority with the Commission rather than with the Minister and Cabinet. Specific powers to consider vesting with the Commission include: - The power to approve licensing decisions. - Authority to waive foreign shareholder and director requirements. - Authority to amalgamate. - The power to revoke licenses. - The power to take control of a life insurance company. - Improve operational independence of the OIC: - Repeal or amend Section 45 of the Insurance Commission Act, 2007 (ICA) (allows the Minister to override any decision of the OIC). - Move toward appointment of all commissioners based on suitability criteria rather than on positions in other government organizations. - Give the OIC, rather than the Minister, the authority to set fee levels on industry. - Strengthen OIC accountability alongside increased independence: - Publish a publicly-available annual multiyear strategic and operational plan including performance measures. - Include progress in meeting goals and objectives in OIC’s publicly-available annual report. - Licensing, suitability, and control - Continue review of licensing requirements to increase clarity, consistency and timeliness. - Strengthen suitability requirements for all real person controlling beneficiaries of insurers, particularly identification and integrity assessment. - Consider developing specific competency requirements for control functions (e.g., risk management). - Primary insurance legislation should include an appropriate definition of control; current legislation lacks general provisions requiring ongoing approval of all changes in control other than those for foreign shareholders. - Supervisory preemptive action and enforcement - Create legislative power for the OIC to take control of non-life insurers. - Modify the ladder of intervention to add an additional stage focused on preparing for the orderly wind-up of the insurer as a gone concern. - Strengthen enforcement powers related to intermediaries (e.g., power to suspend intermediary licenses). - Winding up and exit from the market - Amend insurance legislation to clearly establish a point at which a troubled insurer cannot continue in business (example: capital adequacy ratio (CAR) of less than 100 percent). - Reinsurance recoverables - Seek more certainty as to collection from foreign reinsurers without domestic presence; consider strengthening legal framework to improve security of reinsurance recoverables owed to an insolvent domestic insurer from a foreign reinsurer with no domestic presence. - Risk-Based Capital (RBC) - RBC currently excludes provisions for operational and catastrophe risks. - As OIC moves toward “RBC2” and possible recalibration of RBC, consider including operational and catastrophe risks in RBC as the standard method for capital assessment. - Intermediary and consumer protection enhancements - Amend legislation to require intermediaries to disclose the amount and/or the basis of compensation to clients. - Provide more guidance on handling perceived, potential, and real conflicts of interest. - Consider requiring errors and omissions (professional indemnity) insurance for insurance brokers and other intermediaries. - Develop specific rules on use of client information for ancillary purposes (e.g., cross-selling), with OIC and industry associations. - Consider an industry complaint tracking system to collect information from all insurers and brokers on complaint numbers, types, and resolutions. - Countering fraud - Develop a centralized fraud database at the OIC and consider requiring timely reporting of any fraud or act that may have a material impact on an insurer, whether or not rectified by the insurer. - Cross-border crisis management - Apply supervisory measures objectively based on stated criteria and determine insurers/situations for which contingency plans should be required. ### Assessment methodology and scope - ICP ratings used: - Observed (O): all standards observed except those not applicable. - Largely observed (LO): only minor shortcomings. - Partly observed (PO): shortcomings sufficient to raise doubts about ability to achieve observance. - Not observed (NO): no substantive progress toward observance. - Assessment basis: - Laws, regulations, and supervisory practices in place in February 2019. - Does not reflect ongoing regulatory initiatives, though key proposals are discussed. - Authorities provided a self-assessment and examples of supervisory practices; assessors engaged with authorities but did not meet consumer groups. ### Institutional and macroprudential setting - Main supervisors with sector-specific legislation: - Insurance: Office of the Insurance Commission (OIC). - Banking: Bank of Thailand (BOT). - Securities and provident funds: Securities and Exchange Commission (SEC). - Authorities operate with considerable autonomy and cooperate on financial groups and financial stability issues. - OIC governance and financing: - OIC led by a Board of Directors including Permanent Secretaries, the Governor of the Bank of Thailand, the Secretary-General of the SEC, Secretary-General of the OIC (Secretary), and OIC’s Chief Executive Officer; Board also includes at least six (and not more than eight) other appointed members. - OIC became an independent authority with the Insurance Commission Act (ICA) in 2007; Secretary General is Chief Executive and supervises day-to-day insurance business under Civil and Commercial Code, Life Insurance Act 1992 (LIA) and Non-Life Insurance Act 1992 (NLIA). - OIC financed by levies on the sector; levies approved by the Minister and Cabinet. ### OIC organization and staffing (January 2019) - Total staff: 575 (389 at central office in Bangkok; 186 in regional offices). - Staff deployment by division and headcount: - General Administration Group (budget, finance, and accounting): 48 officers. - Examination Group: 33 officers. - Insurance Business Analysis Group (offsite analysis, strategic development responsibilities): 27 officers. - Insurance Intermediary Examination Group: 27 officers. - Supervisory Standard Development Group (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 (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 (complaint handling, call center, dispute settlement): 34 officers. - Office of Secretary General Group: 60 officers, including: - Secretary general’s office - Senior insurance Experts - Internal Audit Department - Human Resource Department - OIC Advanced Insurance Institute - Motor Vehicle Accident Victims Protection Department ### Market structure, size, and performance (selected facts) - Thailand is the world’s 29th largest insurance market. - Comparative penetration (2016, percent and Per Capita* in U.S. Dollars): - Thailand: Life 3.91 (254.93), Non-Life 1.19 (77.31), Personal Accident and Health 0.29 (18.59), Total 5.39 (350.82). - Singapore: Total 8.75 (4,691.04). - Malaysia: Total 4.06 (403.48). - Vietnam: Total 2.18 (50.31). - Indonesia: Total 1.75 (67.52). - Premiums written in 2017 (THB million; percent of total market): - Life: 597,321.56 (72.67 percent). - Non-Life: 181,139.83 (22.03 percent). - Personal Accident and Healthcare: 43,547.92 (5.30 percent). - Total: 822,009.31 (100.00 percent). - Life sector composition: - Life accounts for approximately 73 percent of net premiums written. - Approximately 72 percent of life premiums are individual policies (largely endowment products encouraged by tax incentives). - Group policies: approximately 20 percent of life premiums. - Personal accident and sickness written by life insurers: currently account for only one percent of premiums written by life insurers (written as riders). - All other forms of life insurance: approximately seven percent of life insurance premiums written. - Non-life sector composition: - Non-life accounts for approximately 22 percent of premiums written. - Voluntary motor insurance: roughly 50 percent of non-life business. - Property insurance: approximately 16 percent of the non-life market. - Compulsory motor insurance: approximately 8 percent. - Other non-life classes: approximately 26 percent (including personal accident and sickness written by non-life insurers: eighteen percent of non-life premiums; marine aviation and transit ~2 percent; liability insurance ~1 percent; all other classes ~5 percent). - Distribution channels: - Non-life: brokers >55 percent of non-life business; agents ~16 percent; bancassurance ~13 percent. - Life: agency and bancassurance channels account for more than 94 percent of direct premium written. - Internet and other channels: less than 7 percent of direct premiums written (growing rapidly). - Authorized insurers (end-December 2018): total of 82 authorized insurers including six foreign branch insurers. - 58 non-life insurers. - 22 life and pension insurers. - 2 locally established reinsurance companies. - Foreign participation: - Approximately 25 percent of total industry assets are foreign owned (decreased from approximately 31 percent in 2013). - 34 insurance companies have some international participation: 11 life insurance companies and 23 non-life insurance companies. - Market concentration: - Herfindahl-Hirschman Index: less than 1400 for the life industry (unconcentrated); less than 200 for the non-life industry (highly competitive). - Largest market share: life industry 26 percent; non-life industry 8 percent. ### Governance, reporting, audit, and actuarial standards - Accounting standards: - Federation of Accounting Professions (FAP) has generally adopted all International Financial Reporting Standards (IFRS) with a one-year delay. - Thai Financial Reporting Standards (TFRS) aligned with the 2016 version of IFRS; TFRS implies a risk-adjusted present value approach to assets and liabilities on a going-concern basis. - TFRS adopted by all insurers in Thailand. - Insurers preparing to adopt IFRS 9, Financial Instruments, effective in 2020. - FAP issuing guideline for insurers electing to defer IFRS 9 until IFRS 17 becomes effective in Thailand, tentatively, in 2023. - Audit and actuarial oversight: - Financial statements must be reviewed or audited by a Certified Public Accountant complying with Thai Auditing standards. - Independent auditors must be licensed; licensing includes training in insurance business, IFRS, international auditing standards, corporate governance, risk management, and internal controls. - Independent auditors must use actuaries to review technical accounts and reserves. - Licensed actuary required to certify liability valuation annually on both a gross and net of reinsurance basis; license issued by OIC and renewed every two years. - Qualification for non-life actuary: fellow of the Society of Actuaries of Thailand or graduate from an Office of Civil Services Commission-approved university with at least five years reserving experience. - Life actuaries required to be a fellow of the Society of Actuaries of Thailand. - Actuaries must comply with OIC code of conduct and standard practice; violations can lead to suspension or revocation of license. ### Solvency position and capital metrics (selected figures) - Life sector solvency: - TCR (Bahts in billions): 2013 109.63; 2014 132.64; 2015 133.77; 2016 144.55; 2017 157.90; Q3/2018 163.71. - Average CAR (in percent): 2013 391.30; 2014 410.00; 2015 379.01; 2016 344.23; 2017 344.19; Q3/2018 353.47. - Non-life sector solvency: - TCR (Bahts in billions): 2013 32.67; 2014 48.52; 2015 56.66; 2016 57.46; 2017 58.58; Q3/2018 61.8. - Average CAR (in percent): 2013 400.50; 2014 222.99; 2015 311.41; 2016 312.32; 2017 319.90; Q3/2018 313.96. - Observations: - Solvency position for life sector has remained reasonably constant over the last three years after a small decline between 2014 and 2015. - Non-life sector position remained fairly constant over the last four years after a significant decline in 2014. - Average capital ratio of both life and non-life sectors remains substantially above the minimum capital requirement. - At the time of the report only one small non-life insurer had fallen below the Total Capital Required (TCR); historically the number below TCR ranged from one to three and licenses were revoked in such cases. ### Operating performance and profitability (selected figures) - Life industry ROE (in percent): 2013 12.76; 2014 10.53; 2015 11.35; 2016 12.92; 2017 12.75. - Life ROE range described as 10.5 to 12.9 percent in recent years. - Non-life industry ROE (in percent): 2013 21.23; 2014 18.47; 2015 12.05; 2016 9.04; 2017 7.41. - Non-life profitability has steadily declined since a hard market in 2013; 2017 ROE approximately 7.4 percent. - 2018 estimated ROE expected to further decline due to intense competition and premium volume growth tied to automobile sales. - Reinsurance ROE (in percent): 2013 (24.31); 2014 (5.05); 2015 40.23; 2016 25.69; 2017 30.91. ### Risks, vulnerabilities, and industry responses - Macroeconomic dependency: - Insurance sector growth and stability dependent on continued economic growth and regional and broader financial sector stability. - Economic growth expectation stated as in the range of 2–3 percent per annum; economic or political shocks could have significant impacts. - Life sector structural challenges: - Aging population: seniors about 14.2 percent of national population in 2015; expected to grow to more than 25 percent by 2023—impacts sale of traditional products. - Difficulty matching long-duration insurance liabilities with available local investment instruments. - Low interest rate environment: rates have declined below assumptions used when many long-term guaranteed policies were issued. - Bancassurance historically a major driver of premium growth (most products sold via bancassurance are guaranteed endowment products). - Asset/liability duration mismatch causes volatility in earnings, capital requirements, and capital resources. - Industry adjustments: - Thai life insurers with guaranteed products aim to offer less guaranteed benefits and focus on life protection, health protection, and unit-linked products to shift investment risks to policyholders. ### Key ICP-level observations and aggregate rating summary - ICP summary (selected findings): - ICP 1 Objectives, Powers, and Responsibilities of the Supervisor — LO (concern: several key powers rest with the Minister/Cabinet). - ICP 2 Supervisor — LO (independence and transparency can be improved). - ICP 3 Information Exchange and Confidentiality Requirements — O. - ICP 4 Licensing — PO (licensing criteria need updating). - ICP 5 Suitability of Persons — PO (strengthen requirements for significant owners and real person controlling beneficiaries). - ICP 6 Changes in Control and Portfolio Transfers — PO (legislation lacks an appropriate definition of control and ongoing approval provisions). - ICP 7 Corporate Governance — O. - ICP 8 Risk Management and Internal Controls — O. - ICP 9 Supervisory Review and Reporting — LO (framework largely new and not fully tested). - ICP 10 Preventive and Corrective Measures — LO (ladder of intervention delays strongest powers until very serious deterioration). - ICP 11 Enforcement — LO (enhance ability to take control of non-life insurers and increase enforcement powers over intermediaries). - ICP 12 Winding-up and Exit from the Market — LO (legislation does not specify a clear cessation point). - ICP 13 Reinsurance and Other Forms of Risk Transfer — O (noted difficulty assuring recoverables from foreign reinsurers without domestic presence). - ICP 14 Valuation — O. - ICP 16 Enterprise Risk Management for Solvency Purposes — LO (ORM/ORSA notifications recently adopted; ORSA reporting begins in 2020). - ICP 17 Capital Adequacy — LO (RBC excludes operational and catastrophe risks; OIC moving toward “RBC2”). - ICP 18 Intermediaries — LO (many COB requirements new and not yet fully tested). - ICP 19 Conduct of Business — LO (COB requirements new; guidance on use of client information and conflict of interest disclosure limited). - ICP 20 Public Disclosure — LO (notifications recently enacted and do not explicitly require certain ICP 20 disclosures). - ICP 21 Countering Fraud in Insurance — LO (new notifications 2018 not yet in force; some reporting gaps). - ICP 23 Group-wide Supervision — O. - ICP 26 Cross-border Cooperation and Coordination on Crisis Management — PO (OIC does not formally participate in all supervisory colleges or crisis management groups). - Aggregate summary (Table 8): - Observed (O): 10 - Largely Observed (LO): 12 - Partly Observed (PO): 4 - Not Observed (NO): 0 - Total: 26 ### Selected legislative and supervisory actions in progress or recommended (high-level) - Amend primary legislation to vest greater powers in the OIC (ICP 1, ICP 11, ICP 12). - Repeal or revise Section 45 of the ICA and reform appointment processes to enhance independence and accountability (ICP 2). - Strengthen licensing, suitability, and control definitions and processes, including for real person controlling beneficiaries (ICP 4, ICP 5, ICP 6). - Modify ladder of intervention to add a stage focused on orderly wind-up (ICP 10). - Enhance RBC to include operational and catastrophe risks and study calibration to higher confidence levels (ICP 17). - Require intermediaries to disclose compensation basis/amount and consider mandatory professional indemnity insurance (ICP 18). - Centralize and require timely reporting of material fraud events; consider an OIC centralized fraud database (ICP 21). - Develop criteria for cross-border contingency plans and amend notifications to cover ICP 26 information-sharing expectations (ICP 26). *Source: EXECUTIVE SUMMARY and selected chapters, Assessment of Insurance Core Principles (Thailand), February 2019 (content unit 1thaea2019005).* ### EXECUTIVE SUMMARY ______________________________________________________________ 5 ### EXECUTIVE SUMMARY ### Overview and key statistics - Insurance sector assets grew from 10 percent of gross domestic product (GDP) in 2006 to over 22 percent of GDP in 2016, constituting 9 percent of total financial industry assets. - Between 2008 and 2017, gross premiums written grew at an average annual rate of approximately 16.9 percent, compared with nominal GDP growth of 9.9 percent during the same period. - Insurance penetration ratio (premiums written to GDP) increased from 3.63 percent in 2008 to 5.39 percent in 2017. - The assessment was conducted from February 6 until February 22, 2019. - The assessment is benchmarked against the Insurance Core Principles (ICPs) issued by the IAIS in October 2011, including revisions authorized up until December 2017. ### Recent supervisory developments and improvements - Major changes and improvements over the last seven years include: - Development and retention of a strong, effective supervisory staff. - Governance and internal control requirements. - A risk based supervisory framework. - Capital adequacy, valuation, reserving, investment, and reinsurance requirements. - A well-developed macroprudential framework. - Improvements in information exchange and cross-border cooperation. - Several major initiatives have been commenced to strengthen other areas of supervision, with extensive consultation with industry. New requirements include: - Enterprise risk management. - Regulation and supervision of intermediaries. - Conduct of business regulation. - Full assessment of some recently introduced areas is premature because certain requirements have only recently come into force and implementation is still underway; full verification requires regular supervisory processes over the next few years. ### Remaining challenges and prioritized recommendations - Consider vesting more supervisory authority for key supervisory decisions with the Commission rather than with the Minister and Cabinet to ensure adequate powers to meet supervisory objectives. Specific authorities and powers to consider vesting with the Commission include: - The power to approve licensing decisions. - Authority to waive foreign shareholder and director requirements. - Authority to amalgamate. - The power to revoke licenses. - The power to take control of a life insurance company. - Improve operational independence of the OIC to be more consistent with ICP standards. Considerations include: - Repealing or amending Section 45 of the Insurance Commission Act, 2007 (ICA), which allows the Minister to override any decision of the OIC. - Moving toward appointment of all commissioners based on suitability criteria rather than on positions in other government organizations. - Giving the OIC, rather than the Minister, the authority to set fee levels on industry. - Strengthen OIC accountability alongside increased independence by developing a more formal accountability framework, for example: - A publicly-available annual multiyear strategic and operational plan that would include performance measures. - Inclusion in OIC’s publicly-available annual report of progress in meeting the goals and objectives set out in its strategic and operational plan. - Licensing, suitability, and control requirements should be reviewed and strengthened: - Continue review of licensing requirements to increase clarity, consistency and timeliness of licensing decisions and procedures. - Strengthen suitability requirements for all real person controlling beneficiaries of insurers, particularly for identifying such individuals and assessing their integrity. - Consider developing more specific competency requirements for individuals in some control functions (e.g., risk management). - Primary insurance legislation should include an appropriate definition of control; existing legislation does not include general provisions requiring ongoing approval of all changes in control other than those with respect to foreign shareholders. - Supervisory preemptive action and enforcement: - Create a legislative power for the OIC to take control of non-life insurers. - Modify the ladder of intervention to add an additional stage focused on preparing for the orderly wind-up of the insurer as a gone concern. - Consider strengthening some enforcement powers related to intermediaries, such as the power to suspend intermediary licenses. - Winding up and exit from the market: - Amend insurance legislation to clearly establish a point at which it is no longer permissible for a troubled insurer to continue in business (e.g., a capital adequacy ratio (CAR) of less than 100 percent). - Reinsurance recoverables: - Seek more certainty as to collection of amounts recoverable from foreign reinsurers, including strengthening the legal framework to improve security of reinsurance recoverables owed to an insolvent domestic insurer from a foreign reinsurer with no domestic presence. - Risk-Based Capital (RBC): - RBC currently excludes provisions for operational and catastrophe risks. - As the OIC moves toward “RBC2” and possible recalibration of RBC, consider including operational and catastrophe risks in RBC as the standard method for capital assessment. - Intermediary and consumer protection enhancements: - Amend legislation to require intermediaries to disclose the amount and/or the basis of compensation to clients. - Provide more guidance on expectations regarding the handling of perceived, potential, and real conflicts of interest. - Consider a requirement for errors and omissions (professional indemnity) insurance for insurance brokers and other intermediaries. - Develop more specific rules on the use of client information for ancillary purposes such as cross-selling of financial services products (OIC in conjunction with industry associations). - Consider development of an industry complaint tracking system to collect information from all insurers and brokers on number and types of complaints received and how they were resolved. - Countering fraud: - New requirements provide an opportunity for the OIC to develop a centralized fraud database. - Consider requiring that any fraud or act that may have a material impact on an insurer be reported to the OIC on a timely basis, whether or not the insurer may have rectified the matter. - Cross-border crisis management: - Supervisory measures regarding cross-border crisis management should be objectively applied based on stated criteria, including determining those insurers or situations for which contingency plans should be required. ### Assessment methodology and scope - The level of observance for each ICP reflects assessment against its standards with the following ratings: - Observed: all standards observed except those considered not applicable; supervisor must have legal authority and exercise it satisfactorily. - Largely observed: only minor shortcomings exist. - Partly observed: shortcomings sufficient to raise doubts about ability to achieve observance. - Not observed: no substantive progress toward observance. - The assessment is based solely on laws, regulations, and other supervisory practices in place in February 2019. - The assessment does not reflect ongoing regulatory initiatives, though some key proposals are discussed as additional comments. - The authorities provided a self-assessment and examples of supervisory practices (identities of entities not disclosed) and engaged in technical discussions with the assessors; assessors did not meet with any consumer groups. ### Institutional and macroprudential setting - Financial sector regulation in Thailand is dependent on three main supervisory authorities with sector-specific legislation: - Insurance: Office of the Insurance Commission (OIC). - Banking: Bank of Thailand (BOT). - Securities and provident funds: Securities and Exchange Commission (SEC). - 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. - OIC governance and financing: - The OIC is within a portfolio of agencies reporting to the Minister of Finance and is led by a Board of Directors that 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 OIC’s Chief Executive Officer. The Board also has at least six (and not more than eight) other members appointed based on professional backgrounds (law, accountancy, business administration, finance, economics, and/or insurance). - The OIC became an independent authority with the passage of the Insurance Commission Act (ICA) in 2007. The Secretary General is its Chief Executive and supervises day-to-day insurance business 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 the Insurance Commission as defined under section 6, 12, 17, and 20 of Insurance Commission Act 2007. - The OIC is financed by levies on the sector it regulates; these are approved by the Minister and Cabinet. ### OIC organization and staffing (January 2019) - Total staff: 575 (389 at central office in Bangkok; 186 in regional offices). - Staff deployment by division and headcount: - General Administration Group (budget, finance, and accounting): 48 officers. - Examination Group: 33 officers. - Insurance Business Analysis Group (offsite analysis, strategic development responsibilities): 27 officers. - Insurance Intermediary Examination Group: 27 officers. - Supervisory Standard Development Group (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 (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 (complaint handling, call center, dispute settlement): 34 officers. - Office of Secretary General Group: 60 officers, including: - Secretary general’s office - Senior insurance Experts - Internal Audit Department - Human Resource Department - OIC Advanced Insurance Institute - Motor Vehicle Accident Victims Protection Department *Source: EXECUTIVE SUMMARY, Assessment of Insurance Core Principles (Thailand), February 2019.* ### 12. The Thai insurance industry is a relatively small but growing part of the country’s ### 12. The Thai insurance industry is a relatively small but growing part of the country’s financial services sector ### Market size, growth, and penetration - Insurance sector assets: from 10 percent of GDP in 2006 to over 22 percent of GDP in 2016; constitutes 9 percent of total financial sector assets. - Gross premiums written: grown at an average annual rate of approximately 16.9 percent between 2008 and 2017; nominal GDP growth over the same period was 9.9 percent. - Insurance penetration (premiums written to GDP): 3.63 percent in 2008 to 5.39 percent in 2017. - Thailand is the world’s 29th largest insurance market. - Comparative penetration (2016, percent and Per Capita* in U.S. Dollars): - Thailand: Life 3.91 (254.93), Non-Life 1.19 (77.31), Personal Accident and Health 0.29 (18.59), Total 5.39 (350.82). - Singapore: Total 8.75 (4,691.04). - Malaysia: Total 4.06 (403.48). - Vietnam: Total 2.18 (50.31). - Indonesia: Total 1.75 (67.52). ### Market composition and products - Premiums written in 2017 (THB million; percent of total market): - Life: 597,321.56 (72.67 percent). - Non-Life: 181,139.83 (22.03 percent). - Personal Accident and Healthcare: 43,547.92 (5.30 percent). - Total: 822,009.31 (100.00 percent). - Life sector composition: - Life accounts for approximately 73 percent of net premiums written. - Approximately 72 percent of life premiums are individual policies—largely endowment policies encouraged by government tax incentives. - Group policies: approximately 20 percent of life premiums (largely employee benefit packages). - Personal accident and sickness written by life insurers: currently account for only one percent of premiums written by life insurers (written as riders). - All other forms of life insurance: approximately seven percent of life insurance premiums written. - Non-life sector composition: - Non-life accounts for approximately 22 percent of premiums written. - Voluntary motor insurance: roughly 50 percent of non-life business. - Property insurance: approximately 16 percent of the non-life market. - Compulsory motor insurance: approximately 8 percent. - Other non-life classes: approximately 26 percent (including personal accident and sickness written by non-life insurers: eighteen percent of non-life premiums; marine aviation and transit ~2 percent; liability insurance ~1 percent; all other classes ~5 percent). ### Distribution channels and compulsory products - Distribution: - Non-life: brokers >55 percent of non-life business; agents ~16 percent; bancassurance ~13 percent. - Life: agency and bancassurance channels account for more than 94 percent of direct premium written. - Internet and other channels: currently small (less than 7 percent of direct premiums written) but internet-based sales are starting to grow rapidly. - Compulsory insurance products (listed): - 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. - Compliance with compulsory insurance requirements: not said to be a significant issue. ### Industry participants, ownership, and concentration - Number of authorized insurers (end-December 2018): total of 82 authorized insurers including six foreign branch insurers. - 58 non-life insurers. - 22 life and pension insurers. - 2 locally established reinsurance companies. - Market entry and ownership rules: - Market participants must 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 required for life and non-life business. - Section 10 of the LIA and Section 9 of the NLIA: Thai nationals must hold at least 75 percent of voting shares of a public limited company insurer; three quarters of directors must be Thai nationals. - The Commission may permit non-Thai nationals to hold shares up to 49 percent of voting shares and permit non-Thai directors to exceed 1/4 but be less than 1/2 of total directors in appropriate cases; Minister may grant waivers on recommendation of the Commission under prescribed regulations, procedures, conditions, or time limits. - Example: In 2012, AXA was granted permission to hold a 100 percent shareholding of AXA insurance public Co., Ltd. - Foreign participation and ownership: - Approximately 25 percent of total industry assets are foreign owned (decreased from approximately 31 percent in 2013). - 34 insurance companies have some international participation: 11 life insurance companies and 23 non-life insurance companies. - Approximately 23 insurance companies have equity links to banking groups and non-financial conglomerates. - Market concentration: - Herfindahl-Hirschman Index: less than 1400 for the life industry (unconcentrated); less than 200 for the non-life industry (highly competitive). - Largest market share: life industry 26 percent; non-life industry 8 percent. ### Governance, reporting, audit, and actuarial standards - Accounting standards: - Federation of Accounting Professions (FAP) authorized to develop accounting standards; has generally adopted all International Financial Reporting Standards (IFRS) with a one-year delay. - Thai Financial Reporting Standards (TFRS) aligned with the 2016 version of IFRS. - TFRS approach implies a risk-adjusted present value approach to assets and liabilities on a going-concern basis. - TFRS adopted by all insurers in Thailand. - Insurers preparing to adopt IFRS 9, Financial Instruments, effective in 2020. - FAP is issuing a guideline for insurers electing to defer IFRS 9 implementation until IFRS 17, Insurance Contracts, becomes effective in Thailand, tentatively, in 2023. - Audit and actuarial oversight: - Financial statements must be reviewed or audited by a Certified Public Accountant complying with Thai Auditing standards. - Independent auditors must be licensed; licensing includes training in insurance business, IFRS, international auditing standards, corporate governance, risk management, and internal controls. - Independent auditors must use actuaries to review technical accounts and reserves. - Auditors of financial institutions must be approved by the SEC as auditors in the capital market. - Licensed actuary required to certify liability valuation annually on both a gross and net of reinsurance basis; license issued by OIC and renewed every two years. - Qualification for non-life actuary: fellow of the Society of Actuaries of Thailand or graduate from an Office of Civil Services Commission-approved university with at least five years reserving experience. - Life actuaries required to be a fellow of the Society of Actuaries of Thailand. - Actuaries must comply with OIC code of conduct and standard practice; violations can lead to suspension or revocation of license. - Majority of actuaries maintain fellowships in internationally-recognized actuarial societies (Society of Actuaries (U.S.), Institute of Actuaries of Australia (IAA), Institute and Faculty of Actuaries (IFoA) (U.K.), CAS (U.S.)). ### Operating performance and profitability - Life industry ROE (in percent): 2013 12.76; 2014 10.53; 2015 11.35; 2016 12.92; 2017 12.75. - Life ROE range described as 10.5 to 12.9 percent in recent years. - Loss ratio and expense ratio: stable; investment returns have recently decreased. - Non-life industry ROE (in percent): 2013 21.23; 2014 18.47; 2015 12.05; 2016 9.04; 2017 7.41. - Non-life profitability has steadily declined since a hard market in 2013. - 2017 ROE approximately 7.4 percent; impacted by motor insurance business direction. - 2018 estimated ROE to further decline due to intensely competitive market; premium volume expected to grow with automobile sales. - Reinsurance ROE (in percent): 2013 (24.31); 2014 (5.05); 2015 40.23; 2016 25.69; 2017 30.91. - Reinsurance profitability was significantly impacted by catastrophic flood losses in 2011 with effects until 2013; profitability has significantly improved in recent years. ### Assets, liabilities, and investment profile - Insurance sector assets: grew by approximately 56.4 percent between 2013 and end-2017; growth attributable to life insurance sector. - Life sector (Total Assets in Billion Baht): - 2013: 1,902.90; 2014: 2,301.20; 2015: 2,580.79; 2016: 2,895.93; 2017: 3,316.46. - Life investments (2017): Government securities 1,907.83; Corporate bonds 640.97; Equities 254.61; Real estate 20.04; Cash and bank balances 45.22; Investments supporting unit linked 26.45. - Technical provisions (2017): 2,531.27 (Billion Baht). - Share capital (2017): 93.48 (Billion Baht). - Accumulated retained earnings (2017): 225.45 (Billion Baht). - Non-life sector (Total Assets in Billion Baht): - 2013: 483.91; 2014: 456.89; 2015: 447.32; 2016: 451.60; 2017: 449.80. - Non-life investments (2017): Government securities 68.66; Corporate securities 33.05; Equities 88.85; Cash and bank balances 91.74. - Technical provisions (2017): 177.80 (Billion Baht). - Accumulated retained earnings (2017): (14.07) (Billion Baht). - Reinsurance sector (Total Assets in Billion Baht): - 2013: 29.50; 2014: 16.17; 2015: 15.09; 2016: 14.64; 2017: 13.37. - Reinsurance technical provisions (2017): 3.90 (Billion Baht). - Investment profile and trends: - Life insurers: conservative profile, strongly weighted toward government securities (~66 percent of life insurer assets). - Composition relatively constant over five years. - Non-life sector: heavier investments in corporate securities and equities (43.6 percent of investments in 2017). - Over five years, equities for the non-life sector increased by 75 percent, comparable to market indices growth; non-life premium volume was flat over the same period. ### Solvency position - Life sector solvency (TCR and Average Capital Ratio (CAR)): - TCR (Bahts in billions): 2013 109.63; 2014 132.64; 2015 133.77; 2016 144.55; 2017 157.90; Q3/2018 163.71. - Average CAR (in percent): 2013 391.30; 2014 410.00; 2015 379.01; 2016 344.23; 2017 344.19; Q3/2018 353.47. - Non-life sector solvency: - TCR (Bahts in billions): 2013 32.67; 2014 48.52; 2015 56.66; 2016 57.46; 2017 58.58; Q3/2018 61.8. - Average CAR (in percent): 2013 400.50; 2014 222.99; 2015 311.41; 2016 312.32; 2017 319.90; Q3/2018 313.96. - Observations: - Solvency position for life sector has remained reasonably constant over the last three years after a small decline between 2014 and 2015. - Non-life sector position remained fairly constant over the last four years after a significant decline in 2014. - Average capital ratio of both life and non-life sectors remains substantially above the minimum capital requirement. - At the time of the report only one small non-life insurer had fallen below the Total Capital Required (TCR); historically the number below TCR ranged from one to three and licenses were revoked in such cases. ### Risks, vulnerabilities, and industry responses - Macroeconomic dependency: - Continued growth and stability of the insurance sector dependent on continued economic growth and regional and broader financial sector stability. - Economic growth expectation stated as in the range of 2–3 percent per annum; economic or political shocks could have significant impacts. - Authorities are aware and are working to maintain a stable environment. - Life sector structural challenges: - Aging population: seniors about 14.2 percent of national population in 2015; expected to grow to more than 25 percent by 2023—impacts sale of traditional products. - Strategic, operational, and conduct-of-business risks in developing new products for seniors. - Difficulty matching long-duration insurance liabilities with investment instruments in local markets. - Low interest rate environment: interest rates have declined below assumptions used when many long-term guaranteed policies were issued. - Bancassurance historically a major driver of premium growth; most products sold via bancassurance are guaranteed endowment products and remain popular. - Mismatch in asset/liability duration causes volatility in earnings, capital requirements, and capital resources. - Observed industry adjustments: - Thai life insurers, especially those with guaranteed products, 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. *Source: Chapter content from 1thaea2019005 (IMF).* ### 36. The Thai non-life insurance market is intensely competitive and there are a large ### 1thaea2019005 - 36. The Thai non-life insurance market is intensely competitive and there are a large ### Market structure and sectoral risks - "The Thai non-life insurance market is intensely competitive and there are a large number of insurers for the size of market." - Risk that competition "on price, rather than on quality of service, could result in the erosion of underwriting discipline and could create solvency problems," particularly 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." ### Preconditions for effective insurance supervision — macroeconomic and financial context - Thailand ranked "32nd in global competitiveness" by the World Economic Forum (WEF). - WEF positive factors: "quality of the macroeconomic environment, health and primary education, and market size." - WEF top challenges: "some inefficient institutions and lack of innovation." - Structural shifts: economy increasingly driven by industry and service sectors; "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." - Monetary framework: Bank of Thailand (BOT) "has conducted monetary policy under a flexible inflation targeting framework since May 2000," paying attention to price stability, economic growth, and financial stability. - Financial Sector Master Plans (FSMP): - 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." - FSMP III (2016–2020) vision: "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." - Insurance sector alignment: "the OIC has established an Insurance Development Plan, which consists of insurance supervisory and developmental policies that are consistent with this direction." ### Legal framework and access to justice - Thailand's laws: "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." - Civil law is codified; "the Civil and Commercial Code is the most important of the four legal codes insofar as civil matters are concerned." - Governing law distinctions: "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." - Constitution: "the supreme law"; no law/regulation may contradict it. - Key insurance statutes: "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." - Subordinate legislation: Ministerial Regulation/Orders passed by the Cabinet; OIC issues "Insurance Commission Notifications" under the Life and Non-Life Insurance Acts. - Access to courts: "court costs and legal fees are high relative to the incomes of many consumers" and "Thai consumers are generally not litigious"; most disputes settle out of court. - OIC alternative dispute mechanisms: OIC can arbitrate disputes; arbitration is "a quick and economical way of settling contractual disputes, with cases expected to be settled within 90 days." ### Accounting, auditing, and actuarial standards - "Thai Financial Reporting Standards are very similar to IFRS for the insurance sector." - Independent auditors: "must be licensed" and licensing "appear to be rigorous" with requirements in insurance business, IFRS, international auditing standards, corporate governance, risk management, and internal controls. - Auditors "must use actuaries to review the technical accounts and reserves of companies." - Actuarial profession: "approximately 120 actuaries currently licensed" and the Society of Actuaries of Thailand (SOAT) is established. - SOAT: "full member of the International Actuarial Association"; members must comply with "Code of Conduct and Thai Standard of Actuarial Practice" consistent with international standards. - OIC requires licensed actuaries and enforces professional conduct (suspension or revocation for misconduct). ### Mechanisms for consumer protection and safety nets - OIC arbitration: OIC can arbitrate any dispute between the public and insurers; OIC arbitration decisions "are binding on the insurer but are not binding on the policyholder." - TGIA arbitration: Thai General Insurance Association runs an arbitration office primarily for modest-amount disputes (mostly motor insurance), staffed by "four retired criminal and appeal court judges." - Policyholder protection funds: - Non-life protected fund financed by "a 0.1 percent levy on the gross written premium for each company" (Chapter V of the NLIA). - OIC guidelines outline rules and procedures for claims on the fund. - "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)." - Life sector: "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." - OIC administers "the Protection of Motor Vehicle Accident Victims Act" with a separate compensation fund. ### Efficient financial markets — capital markets and bond markets - Stock Exchange of Thailand (SET): - 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 tr illion." - Bond markets: - "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." - Offerings include "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." ### Summary of observance with the ICPs (selected findings) - ICP overall mechanics: Table 7 presents ICP-level observations; select entries below preserve ratings and key comments exactly as presented. - 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." - Concern: "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." - 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 - "licensing criteria need to be updated and applied across all industry applicants." - Recommendation: consider "proposed governance structure, risk management and internal control functions of all licence applicants" and "identification and suitability assessment of controlling beneficiaries" at licensing stage. - 5. Suitability of Persons — PO - Need to strengthen "requirements for significant owners and, in particular, for all real person controlling beneficiaries of insurers" and consider "more specific competency requirements for people in control functions (e.g., risk management)." - 6. Changes in Control and Portfolio Transfers — PO - Observations include: "The insurance legislation does not include an appropriate definition of control" and "does not include general provisions requiring ongoing approval of all changes in control, other than those with respect to foreign shareholders." - 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." Rating reflects that much of the framework is "new (post 2016) and has not been tested by a full onsite cycle with all institutions." - 10. Preventive and Corrective Measures — LO - Observation: "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." - 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 - Concern: "the legislation does not specify a clear point at which it is no longer permissible for an insurer to continue its business." Mitigants: "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 - Note: "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." - 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." - "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." - 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 - Observations: - "Many COB requirements are new to the market and have just been implemented." - "Requirements concerning the use of client information by insurers are basic and do not guard against misuse of client information for purposes like unwanted cross selling of products." - "Conflict of interest/disclosure of compensation requirements for agents and intermediaries should be enhanced." - 20. Public Disclosure — LO - Notifications on disclosure are "recently enacted (2018)." - Notifications "do not explicitly require certain disclosures that are contained in the ICP 20 principles," including sensitivity to market variables, ALM methodology and assumptions, financial performance by segment, and "nature, scale, and complexity of risks arising from insurance contracts." - Notifications require disclosure only of underwriting risks; audited financial statements have more comprehensive requirements. - 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." - 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." - 23. Group-wide Supervision — O - "The OIC does not serve in the capacity of a group-wide supervisor for any groups" and cooperates with BOT and foreign supervisors as involved supervisor. - 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." - Contingency plans for cross-border firms "are not required as a matter of course, but they may be required on an ad hoc basis by the OIC." - Certain ICP expectations (e.g., structured sharing of group information) "are not covered by a specific local requirement" though may be handled in practice. *Source: Excerpt from the IMF assessment text provided in content unit "1thaea2019005 - 36. The Thai non-life insurance market is intensely competitive and there are a large".* ### 51. Table 8 provides a summary of the level of observance. ### Table 8 provides a summary of the level of observance. ### Summary of observance (Table 8) - Observed (O): 10 - Largely Observed (LO): 12 - Partly Observed (PO): 4 - Not Observed (NO): 0 - Total: 26 ### Recommendations to improve observance of ICPs (Table 9) — key policy actions - ICP 1 Objectives, Powers, and Responsibilities of the Supervisor - Amend primary legislation at next opportunity to vest greater power for key supervisory decisions with the OIC. - Consider transferring powers currently vested in the MOF to the OIC directly. - ICP 2 Supervisor - Repeal or revise Section 45 of the ICA to ensure OIC independence in administration of supervisory duties and that its decisions cannot be suspended without appropriate administrative process (e.g., appeal to the court system). - Require commission appointments to be based on candidate qualifications rather than positions in other government organizations. - Give the OIC, rather than the Minister, authority to set fee (or contribution) levels on industry. - Accompany improved independence with measures to increase formal accountability, including an annual multiyear strategic and operational plan with performance measures and an annual report. - Consider publishing more information on the insurance sector in the OIC’s annual report and elsewhere. - ICP 3 Information Exchange and Confidentiality Requirements - No recommendation. - ICP 4 Licensing - OIC should continue review of licensing requirements and introduce appropriate legislative changes at earliest opportunity. - ICP 5 Suitability of Persons - Include suitability requirements for significant owners and all real person controlling beneficiaries in licencing requirements to align with ICP standards. - Consider developing more specific competency requirements for heads of some control functions (e.g., risk management, compliance). - ICP 6 Changes in Control and Portfolio Transfers - OIC to review control provisions alongside licensing and suitability requirements for significant owners and make legislative changes at earliest opportunity. - ICP 7 Corporate Governance - As requirements are principle based, OIC should closely monitor application by insurers over next supervisory cycle. - ICP 8 Risk Management and Internal Controls - OIC should closely monitor application by insurers over next supervisory cycle. - ICP 9 Supervisory Review and Reporting - Document and publish a high-level supervisory framework describing principles, concepts, and core processes used to guide supervision. - Develop specific guidance for staff and industry in emerging operational risk areas (e.g., cyber risk). - Augment supervision of Conduct of Business (COB) requirements to include fuller examination of policies, procedures, and practices; consider thematic examinations in due course. - ICP 10 Corrective and Preventative Action - Modify 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. - ICP 11 Enforcement - Legislation lacks authority for OIC to take control of non-life insurers; add ability to take control to minimize losses when an insurer approaches insolvency. - Implement proposed legislation to increase supervisor’s powers over intermediaries including power to suspend intermediary licences and issue administrative orders. - Consider requiring insurers or intermediaries to make restitution for harm caused by inappropriate Conduct of Business. - ICP 12 Winding-up and Exit from the Market - Amend legislation to clearly establish a point at which an insurer can no longer continue business (e.g., a CAR of less than 100 percent), potentially tied to a risk-based solvency requirement or ladder of intervention. - ICP 13 Reinsurance and Other Forms of Risk Transfer - Develop criteria requiring domestic insurers ceding material risk to foreign reinsurers to perform ongoing credit risk assessments of assuming reinsurers as part of ERM, not rely solely on credit ratings. - Develop additional guidance for ceding insurers in selecting reinsurers, including consideration of supervisory regime of assuming reinsurers. - Consider strengthening legal framework to improve security of reinsurance recoverables owed to an insolvent domestic insurer from a foreign reinsurer with no domestic presence. - ICP 14 Valuation - Clarify guidance for recognition and derecognition of assets and liabilities by expanding references to TFRS in notifications to indicate that valuation aspects not specified by OIC are to be handled according to TFRS. - ICP 15 Investment - No recommendation. - ICP 16 Enterprise Risk Management for Solvency Purposes - OIC to work with industry to enhance insurer performance as new requirements are embedded in business practices. - After ORSA reporting has begun and for several reporting cycles, consider thematic or horizontal reviews to identify outliers and hold workshops with industry for improvements. - ICP 17 Capital Adequacy - Improve upon RBC by providing for operational and catastrophe risks. - OIC is moving toward “RBC2” and may increase RBC calibration confidence levels from 95 percent to 99 percent Value at Risk (VaR) over a one-year time horizon, once accounting standard setters adopt pending new requirements for accounting for insurance contracts (expected to be implemented in Thailand in 2023). - Use interim period to study means and potential impact of adding provisions for operational and catastrophe risks to RBC. - ICP 18 Intermediaries - Amend legislation to require intermediaries to disclose the amount and/or the basis of their compensation to clients. - Consider establishing a requirement for professional indemnity insurance for insurance intermediaries. - ICP 19 Conduct of Business - Provide additional guidance for insurers and intermediaries on dealing with potential, perceived, or actual conflicts of interest. - Work with industry associations to develop a notification on use of client information for cross-selling and ancillary purposes. - Consider development of an industry complaint handling system to collect information from all insurers and brokers on number and types of complaints and how complaints were dealt with. - ICP 20 Public Disclosure - Amend notifications to address, at minimum, all risk and factors covered by principle statements of ICP 20. - Consider revising disclosure requirements to apply more broadly and explicitly to any risk arising from insurance contracts, given OIC’s reliance on TFRS and audited financial statements as a backstop. - ICP 21 Countering Fraud in Insurance - Avail OIC of data soon to be available through fraud databases at insurers and consider a centralized fraud database at the OIC to analyze bad actors and trends. - Amend notifications to require timely reporting to OIC of any fraud or act that may have a material impact on an insurer, whether or not rectified by the insurer. - ICP 22 Anti-Money Laundering and Combating the Financing of Terrorism - No recommendation. - ICP 23 Group-wide Supervision - No recommendation. - ICP 24 Macroprudential Surveillance and Insurance Supervision - No recommendation. - ICP 25 Supervisory Cooperation and Coordination - No recommendation. - ICP 26 Cross-border Cooperation and Coordination on Crisis Management - Develop criteria to identify groups operating in Thailand on a cross-border basis for which OIC should require contingency plans to protect Thailand policyholders on a gone and going concern basis. - Amend notifications to address, at minimum, all information required to be shared by the principle statements of ICP 26. ### Detailed principle-by-principle assessment — selected findings (ICP 1 and ICP 2) - ICP 1 Objectives, Powers, and Responsibilities of the Supervisor - Description - OIC is the only authority responsible for regulation and supervision of the insurance sector. - Authority established under the ICA, the LIA, and the NLIA (including amendments and subordinate legislation). - Thai primary legislation does not include a specific “objectives section”; 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 “remarks” have force of law when interpreted by the courts; cite Section 4 of the general provisions of the Thai Civil and Commercial Code. - OIC’s four main strategic directions (as stated on its website and annual report): Build public trust and access to insurance system; Build stability and competitiveness; Develop protection of insurance-related benefits for the public; Develop insurance infrastructure. - Adequacy of Supervisory Powers - Section 12 of the ICA establishes broad powers including prescribing regulations, guidelines, providing recommendations to Minister or Cabinet, announcing industry rate of contribution with minister approval, prescribing procedures for approving insurance premium rates, considering appeals of administrative orders of the Secretary-General, issuing regulations on organization/finance/personnel, approving operating/annual expenditure plans, and performing other acts prescribed by law. - Several key powers rest with the Minister rather than the OIC: approve licensing decisions; waive foreign shareholder and director requirements; authority to amalgamate; power to revoke a license; power to take control of a life insurance company; approve OIC Board recommended contribution rates; power to increase limit of policyholder protection fund payouts. - Assessment: Largely Observed - Comments: OIC is clearly defined and focused on policyholder protection, but several key supervisory powers rest with the Minister/Cabinet, creating a risk the supervisor may not have adequate timely powers. Recommendation to amend primary legislation to vest greater power with the OIC and transfer powers currently vested in the MOF to the OIC directly. - ICP 2 Supervisor - Description - OIC governance defined under ICA and related regulations. - OIC comprised of a Board of Commissioners and the Office of the Commission. - Board powers: establish policies, form committees/subcommittees (including audit, insurance business plan, budgeting, nomination and remuneration, finance and property management, legal issues, appeals and litigation), deal with appeals of administrative decisions of the Secretary General and OIC. - Commission convenes monthly; ad-hoc meetings possible. - Board composition: two types of members — position members (including Permanent Secretary of the MOF (chair), Permanent Secretary of the Ministry of Commerce, Secretary-General of the Consumer Protection Board, Governor of the BOT, Secretary-General of the Office of the SEC, and the Secretary General of the OIC) and members appointed on basis of qualifications (at least six but no more than eight persons appointed by the Minister with Cabinet approval, backgrounds in law, accountancy, business administration, finance, economics, or insurance; no more than two persons per field). - Office of the Commission headed by the Secretary General responsible for administration. *Source: Thailand — IMF assessment and recommendations as presented in the provided content.* ### Section 21 of the ICA and include: ### Section 21 of the ICA ### Mandate and Functions of the Office - Regulate, promote, and develop the undertaking of insurance business in accordance with the policies and resolutions of the Commission, as well as the regulations, procedures, conditions, and guidelines prescribed by the Commission. - Conduct studies, investigations, analyses and research in order to promote, develop, and regulate the undertaking of insurance business. - Own and hold any property rights. - Establish rights or conduct any juristic acts relating to property. - Make agreements and cooperate with domestic and overseas organizations or agencies in relation to any affairs associated with the operations of the Office. - Procure and provide funds to support the operations of the Office. - Invest to gain interest in any businesses not related to insurance business according to the regulations prescribed by the Commission. - Collect and receive contributions, surcharges, fees, dues, remuneration, or service charges in the operations. - Prepare an annual report showing the achievements and obstacles in the operations of the Commission and the Office, and submit it to the Cabinet. - Perform any other acts and duties as prescribed by law to be under the authority and responsibility of the Commission. ### Governance, Independence, and Accountability - Section 17: OIC described as a state unit which is not a government organization or a state enterprise, implying considerable independence from Government. - Reporting: 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: “The Minister shall have the power of general supervision over the affairs of the Office. In this regard, the Minister may order the Office to clarify facts, provide opinions, or submit reports, and shall be empowered to suspend any act of the Office that is deemed to be contrary to the government's policy.” - This provision suggests any decision of the supervisory authority could potentially be suspended; OIC officials state the section has never been used in this manner and is not thought to be the policy intent. ### Appointment and Dismissal Procedures - Board composition: - Five members appointed on the basis of their positions in other government organizations. - Between six and eight other members appointed by government for fixed terms on the basis of their qualifications. - Section 7: “Qualified” commission member requirements: - Must be a Thai national and meet general suitability and competency requirements. - Must not be: a director, manager, or person with administrative or managerial power of an insurance company; an official, officer, or employee of a government agency or state enterprise, or any other state or local administration agency; a present or previous political official, person holding political position, member of a local assembly, or local administrator, unless vacated office for not less than one year; a present or previous director or person holding any other position in a political party, or an officer of a political party, unless vacated office for not less than one year; a person terminated from employment, dismissed, or discharged by a government agency, state agency, state enterprise, or private entity on grounds of dishonesty in the performance of duties or gross misconduct. - Section 8: Appointment term limited to three years and “qualified” commission members not be re-appointed for more than two consecutive terms. - Section 10: Departure or dismissal grounds include retirement, death, resignation, failure to meet ongoing competency or suitability requirements (section 7), removal by the Cabinet due to inadequate or dishonest performance of duties, misconduct, or lack of ability. - OIC legal counsel: removal for poor performance, dishonesty or misconduct would be by Cabinet resolution, published on the Cabinet website with reasons. - Position members: ICA does not include provisions for removal; they are appointed/removed pursuant to laws governing their other responsibilities. - Secretary General: - Appointment: made by the Minister on the recommendation of the Commission and with the approval of the Cabinet pursuant to Section 23. - Term: four years. - Salary: determined by the Commission with the approval of the Minister. - Role: OIC’s Chief Executive Officer. - Section 32: power to recruit, appoint, remunerate and discipline or dismiss most staff in accordance with regulations prescribed by the Commission; for Deputy Secretary-General, senior management members, and internal auditors, prior approval must be obtained from the Commission. - Suitability and competency requirements described in Section 25 and 26 and similar to “qualified” commission member requirements. - Dismissal: Section 29 covers dismissal including “inadequate or dishonest performance of duties, misconduct or lack of ability” under Section 29 (5); dismissal would be carried out by the Insurance Commission’s resolution, publicly reported with reasons. ### Program Funding - Section 43: main source of funding for the OIC are funds from a levy placed on the insurance companies. - Contribution 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 instruments (laws, regulations, notifications, orders, and rules) are published. - OIC uses published circulars and sector notices to ensure regulated entities are aware of changes and supervisory expectations. - OIC consults with stakeholders on major regulatory changes during development and shares draft regulations and supervisory manuals with stakeholders and the public through its website. - Review cycle: Regulatory requirements mainly reviewed on an ad hoc periodic basis when issues arise; under Royal Decree on Legislation Review, 2014, OIC must review law, rules and regulations under its responsibility every five years. ### Appeals of Supervisory Decisions - Appeal path: - Appeals of administrative decisions by the Secretary General to the Commission. - Commission decisions may be appealed under the Administrative Procedure Act, 1996. - Appeal does not generally stay the decision. - Grounds for appeal include that the decision was: beyond the powers of the Commission (ultra vires) or there was another error of law; unreasonable; made in bad faith; lacking in proportionality; made with a material error as to the facts or procedure. ### Confidentiality of Information - Legal framework: Official Information Act, 1997 and OIC Rules on Confidentiality of Classified Information specify levels of confidentiality and security and disclosure procedures. - OIC Rules on Code of Conduct and Ethics of Personnel, Clause 10: staff must keep confidential the secrets and information on the business of the Office obtained in the course of performance and take precautions to prevent confidential document or information from falling into hands of other persons, unless otherwise authorized by law or permitted by the Office. - Contraventions: subject to disciplinary action under OIC Rules on Personnel (No. 3), 2013, which may include suspension of salary, salary decrease, or dismissal. - OIC advises the provision protects information of insurers and individuals such as complainants. - OIC has disciplined staff in several cases, all related to fraudulent conduct. ### Legal Protection - Section 5 of the Act on Tortious Liability of Officials: “A state agency shall be liable to an injured person for the consequences of a tortious act committed by its official in the course of his performance of duty. In this case, the injured person may directly sue the state agency but cannot sue the official.” - OIC legal counsel: provision protects officials in the “good faith” exercise of their duties. ### Code of Conduct and Conflict of Interest - OIC staff must perform duties in accordance with OIC Rules on Code of Conduct and Ethics, 2014. - Misconduct subject to disciplinary action according to OIC Rules on Personnel, 2007. - Code includes provisions dealing with conflict of interest. ### Adequacy of Resources and Outsourcing - Staff: OIC has a total of 575 staff as of January 2018. - Remuneration policy: reviewed every three years according to OIC Rules on Payroll, 2016. - Strategic HR: 3-year strategic human resource plan for 2017–2019. - Experience and training: - In key supervisory programs, more than 60 percent of staff have at least 10 years experience. - Many staff 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. - Many department heads and key supervisory staff have relevant post graduate training in either Europe or North America. - OIC staff includes several trained actuaries. - Technology: OIC has a technology development plan to enhance supervision capability. - Budget: 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. - Outsourcing: With the exception of testing intermediaries for licensing purposes (see ICP 18.1), OIC has not outsourced any of its supervisory functions. - OIC can hire short-term specialists to support any functions or projects it considers it lacks the capability to fulfill. ### Assessment: Largely Observed — Key Recommendations - Repeal or revise Section 45 of the ICA to ensure OIC independence in administration of supervisory duties and that its decisions cannot be suspended without appropriate administrative process (e.g., appeal to the court system). - Require all commission appointments to be based on the qualification of candidates rather than positions in other government organizations to avoid potential conflicts of interest. - Give the OIC, rather than the Minister, the authority to set fee (or contribution) levels on industry to reduce risk that restrictions on resources could be used to inhibit operational independence. - Accompany improvements in independence with measures to increase formal accountability to government, including a more formal accountability framework, an annual multiyear strategic and operational plan with performance measures, and an annual report designed to report on progress against plan requirements. - To better meet ICP 2.7, consider publishing more information on the insurance sector that OIC regulates in its annual report and elsewhere. ### ICP 3 — Information Exchange and Confidentiality Requirements - Description: Supervisor exchanges information with other relevant supervisors and authorities subject to confidentiality, purpose and use requirements. Authority to Obtain Information - Section 48 of the LIA and Section 51 of the Non-life Insurance Act, 1992 give the Secretary General broad authority to obtain information and examine business activities and financial condition of an insurer, including power to: - Enter the office of the company, during working hours, to obtain information and, in doing so, to call for documents or other evidence from the company's directors, managers, consultants, officers, or employees and to interrogate these persons. - Enter the place of business of the company, or any premises where it is suspected that account books, documents, seals, or any other documents concerning the company's business, assets and liabilities are kept, during working hours or between sunrise and sunset, to inspect or appraise the property of the company. - Order the company or persons concerned with the company's business to deliver documents or other evidence. - Summon the persons mentioned above to give statements or to order them to submit statements of fact, as required. - Sections 48 (3) and 51 (3): OIC may obtain information from “persons concerned with the company’s business,” which includes entities like holding companies or other companies in a corporate group or companies involved in outsourcing arrangements. - These sections require persons concerned to facilitate supervisory staff in performance of their requests. Authority to Exchange Information - 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. - Supervisory college: OIC has a supervisory college with the Thailand Security Exchange Commission and the Bank of Thailand to help supervise Thai financial groups. - Thailand has entered into fourteen other Memorandums of understanding with other supervisory authorities. - Legal authority: supervisor has 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. - Agreements not prerequisite: OIC has exchanged information with authorities without agreements (e.g., other ASEAN insurance supervisors). - Timeliness and reciprocity: OIC appears to exchange information on a timely basis and does not require strict reciprocity; it ensures receiving party is bound by confidentiality and requires use only for lawful supervisory purposes consistent with the original request; approval of originating authority is sought if passing information to another authority. - Legal compulsion: OIC has not faced situation legally compelled to provide confidential information; in such circumstances it would seek approval for disclosure from the originating authority. - IAIS MMOU: OIC is not currently a signatory but is in the process of becoming a signatory and hopes to sign in the near future. Assessment: Observed ### ICP 4 — Licensing (Introduction) - Legal requirement: A legal entity which intends to engage in insurance activities must be licensed before it can operate within a jurisdiction. Requirements and procedures for licensing must be clear, objective and public, and consistently applied. - Definitions and prohibitions: - 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. - Permissible legal forms for insurers: 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. - NLIA and LIA prohibit a life insurance company from engaging in non-life insurance business and a non-life insurance company from engaging in life insurance business (see Section 31 of the NLIA and [continued text not included in provided content]). *Source: 1thaea2019005 - Section 21 of the ICA and include:* ### Section 33of the LIA). ### 1thaea2019005 - Section 33of the LIA) ### Licensing regime and process for insurers - Responsibility for issuing insurer licenses lies with the MOF, with the approval of Cabinet; 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 reviewing licensing requirements to allow increased foreign ownership, open the market to potential new entrants, and increase consistency with the ICPs. - Licensing approvals: - All insurer licenses are approved by the MOF, based on a recommendation from the OIC and the approval of Cabinet. - There does not appear to be a specific published timeframe for review of completed applications. - 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. - Insurance activities without a physical presence are not permitted in Thailand, with the exception of reinsurance and marine insurance. - Work in progress: - Detailed requirements for new branch insurers are being specified. - The OIC is drafting a new notification to allow for licensing of foreign branch reinsurers and a new regulation for non-life foreign branch insurers, to ensure greater consistency with ICP 4 and local business context. - 1995 Notification on public companies (Notifications for Establishment of Public Limited Companies for the Operation of Life/ Non-life Insurance Business, 1995) requires: - Details and biography of the company’s founders, board of directors and management officers: these persons must meet suitability and competency requirements (e.g., no felonies, not previously been bankrupt, etc.). - Registered and paid-up capital: for life insurance company this must not be less than THB 500 million and for Non-Life insurance company must not be less than THB 300 million. - A cash deposit or bank guarantee: 5 percent of the registered capital must be provided. - Business and financial plans: details of short-term and long-term business plans including an expansion plan, financial plan, human resource and the joint venture details with foreign shareholders (if any). - Name and the qualifications of the chief executive officer including details of previous work experience. - Proforma revenue and expense statements including details on insurance premiums. - Applicants cannot have a relationship with existing insurers in terms of cross shareholding, directorships, and management. - A minimum of 25 percent of the insurer’s shares must be held by the founders of the business for at least three years. - OIC capabilities: - OIC can consult with other supervisors on licensing decisions but, as no licenses have been issued in many years, has not had reason to consult. - Assessment: Partly Observed - Comments: Licensing criteria need to be updated and applied across all industry applicants. 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 at licensing stage and identification and suitability assessment of controlling beneficiaries should be part of the licensing process. Time frames for review of applications should be established. - The OIC is aware of deficiencies and is working to make appropriate changes. ### ICP 5 — Suitability of Persons - Requirement: 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. - Legal basis: Section 35 of the LIA and Section 34 of the NLIA require the following persons to meet general suitability requirements: - Directors. - Managers—this includes shareholder controllers and indirect controllers and therefore captures significant owners. - A person authorized to act on behalf of the company. - A consultant to the company. - General suitability requirements include that they: - Have at least a Bachelor’s degree or significant work experience in the insurance business. - Are not and never have been bankrupt. - Have never been imprisoned for an offense related to property. - Have not been a director or officer or person authorized to act on behalf of an insurer that has had its license revoked (unless appointed to such positions by the OIC). - Do not hold such positions in another insurer (unless authorized by the OIC). - Have not been removed from such positions in another insurer. - Are not a political official or a holder of political office. - Are not a government official or an officer of the OIC (unless authorized by the OIC). - Do not have a record of poor professional conduct. - Additional position-specific requirements: - Actuaries (Sections 83/3 and 83/4 of the LIA and Sections 78/3 and 78/4 of the NLIA) must: - Have graduated in actuarial sciences, - Be mentally competent, - Be a fellow of an actuarial association recognized by the OIC, - Have an actuarial license which is not currently suspended and has not been revoked in the last five years, - Comply with the Code of Conduct and Standards of Actuarial Practice prescribed by the OIC. - Auditors (Section 43 of the LIA and Section 47 of the NLIA) shall be a certified auditor under the law on accounting professions and must comply with the Code of Ethics prescribed by the Federation of Accounting Professions. - Suitability requirements for members of an audit committee and key persons in control functions (head of risk management unit and head of compliance unit) are prescribed in the Notification on Internal Control and the Notification on Risk Management. The OIC must be notified if a change of those persons occurs. - Significant owners: - Foreign significant owners are required to demonstrate industry experience, financial stability, and creditworthiness. - Domestic significant owners are not subject to these requirements, nor is there an ongoing suitability requirement that applies to domestic significant owners. - The OIC intends to address this deficiency in future amendments to the LIA and the NLIA. The Life and non-life insurance bills with the provisions relating to suitability of significant owners have been approved by the Cabinet and are now under the consideration of the Council of the State. - OIC monitoring and enforcement: - 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. - OIC 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. - OIC has the power to act when Board members, Senior Management or key persons in control functions no longer meet suitability requirements; usually events are dealt with through discussion and moral suasion, but 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. - OIC can exchange information with other supervisors and regularly does so. - Assessment: Partly Observed - Comments: - Requirements for significant owners and in particular for 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). ### ICP 6 — Changes in Control and Portfolio Transfers - Requirement: 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. - Definition of control: - Insurance legislation does not include a definition of control other than one 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: - 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 initial licensing stage; however, 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. - OIC Notifications for Shareholders Proportion above 49 percent contain similar requirements. - On such changes the OIC coordinates with other supervisory authorities where necessary. - 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. - Legislation appears 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: - Insurance legislation does not contemplate mutual insurers. All insurers must be public limited companies or authorized branches of foreign insurers. - Portfolio transfers: - 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 Section 14 of the LIA require the parties to prepare a proposal for OIC review and give the OIC broad powers to approve or disapprove such transfers; the OIC may prescribe any conditions as deemed appropriate to protect insureds or ensure 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 for transfers associated with an insurer withdrawing from the market. - Assessment: Partly Observed - Comments: - Insurance legislation does not include an appropriate definition of control. - Insurance legislation does not include general provisions requiring ongoing approval of all changes in control, other than those with respect to foreign shareholders. - Recommendation: OIC should review its control provisions in conjunction with suitability requirements for significant owners and make legislative changes at its earliest opportunity. ### ICP 7 — Corporate Governance (introductory note) - Requirement: Supervisor requires insurers to establish and implement a corporate governance framework which provides for sound and prudent management and oversight and adequately recognizes and protects the interests of policyholders. - Description: Some general governance provisions can be found in the Public Limited Companies Act. *Source: 1thaea2019005 - Section 33of the LIA).* ### 1992. For example, pursuant to section 67 of the Act, a company must have at least five ### 1thaea2019005 - 1992. For example, pursuant to section 67 of the Act, a company must have at least five ### Corporate governance framework and key statutory duties - Companies must have at least five directors, one half of whom must reside in Thailand (Public Companies Act, section referenced). - Directors must perform duties in accordance with 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 (Section 85). - The OIC introduced the Notification on Corporate Governance, 2018 under the LIA and the NLIA; the Notification replaces a guideline from 2014 and is patterned on the ICP 7 standards and has force of law. - Major Notification requirements: - All insurance companies must have a written corporate governance framework approved by its board of directors and reviewed by the OIC; the Framework must include the company's policies and strategies and systems of risk management and internal control. - Boards must determine corporate structure, composition, and appropriate number of directors with consideration for nature, size, and complexity of the company and compliance with life insurance, non-life insurance and public limited company laws. - Boards must possess sufficient knowledge, abilities, experience, and a range of experience or skills suited to the company's nature, size, complexity, and risk. ### Board composition, chair, and director categories - Board composition requirements: - Executive directors (not exceeding one-third of all directors). - Independent directors (not exceeding one-fourth of all directors). - The chair of the board must be either an independent director or non-executive director, unless an exemption is granted by the OIC on a case-by-case basis. - Independent directors must meet prescribed qualifications established in the Notification. - Directors must complete an annual self-assessment and submit it to the OIC; each director’s self-assessment must be notarized by two other company directors. ### Board responsibilities, committees, and resourcing - Board responsibilities (in addition to general duties): - Approve strategies and policies on business operations, conflict of interest, whistleblowing, compensation, and code of ethics and business conduct. - Ensure mechanisms to monitor internal functions, risk management and internal control, subcommittees’ appointments, company audit, annual board performance evaluation, public disclosure, and financial reporting. - Continuously monitor the company's operations. - Required committees: - Audit Committee: comprised of at least three persons, two-thirds of whom must be independent directors; oversees financial reporting and internal/external audit activities and reports to the Board. - Risk Management Committee (RMC): comprised of at least five persons; responsible for supporting the Board on risk management and identifying and mitigating risks. - Investment Committee: comprised of at least 3 persons; responsible for establishing investment policy and overseeing investment activities. - The Notification on Corporate Governance 2018, Chapter 2, Clause 7 and 8 requires appropriate number of directors, internal governance practices, self-assessment process, and sufficient resources to carry out board work; Chair required to be non-executive. ### Senior management and executive responsibilities - Executives must adopt and implement board strategies and policies and must: - Have regard for the sustainability of the company's business operations. - Promote implementation of risk management and internal control systems, and fair treatment of the insureds. - Ensure timely reports to the board for performance monitoring and evaluation. - Ensure appropriate chain of command, and risk management, regulation, control, and inspection for each business area. - Communicate the board's risk management policies to personnel. - Perform annual assessment of staff. - Act within the scope of their duties unless the board determines otherwise. ### Remuneration and financial reporting obligations - Clause 12 of the Notification on Governance requires the board to approve a written compensation policy covering company directors, executives, key control-function persons, and major risk–taking staff; policy must deter inappropriate or excessive risk-taking affecting solvency and policyholders' interests. - Clause 12 (2)(g) requires the board to ensure accurate, reliable financial reporting and timely disclosure to the public and regulatory authorities. - Audit oversight (Clause 12 (2)(d)): - Appointment and revocation of the independent auditor including remuneration. - Preparation of reports consistent with legal requirements and accounting standards. - At least once a year, meetings between the Board or the Audit Committee and the auditor without executive attendance. - External auditors must appear on a list of approved auditors published by the Office of the SEC; SEC Notification no. Nor Por 5/2561 requires rotation of approved auditors within seven years. ### Risk management, ORSA, and internal control systems - Notification on ERM/ORSA (2018) requires insurers to establish an effective risk management system to comply with ICP 8 and ICP 16. - Risk management system requirements: - Cover key financial and non-financial risks across activities and processes, with an embedded feedback loop. - Incorporate key risk indicators for active monitoring. - Clearly separate risk-taking from risk oversight and risk monitoring activities. - Define and develop a risk culture where risk management is part of every employee’s responsibilities. - Required processes in the risk management system: - Identify risks and sources of risks with financial and non-financial impact; review at least annually or when risk factors change. - Implement methodology for risk assessment and prioritisation. - Respond to risk per insurer policies. - Control risks and monitor evaluation. - Report on risk management and risk status. - Risk management policy minimum content: - Company policy for managing risks. - Linkages to risk management system, corporate governance, and corporate culture. - Clear relationships between pricing, product development, underwriting, and investment. - Risk reporting guidelines and responsibilities. - Stress testing frequency and content. - Risk tolerance limits consistent with risk appetite. - Linkages between risk tolerance, regulatory capital, economic capital (if applicable), and risk monitoring. - Policy areas that must be written: - Risk management; Product design and development; Pricing; Underwriting; Investment; Claims management; Reinsurance. - Additional policies for Tier 1 and Tier 2A insurers may include: - Outsourcing; Capital management; Asset-liability management. - Board responsibilities for risk governance: - Review and approve risk management framework, policy, risk appetite, and ORSA reports; define business strategy and ensure sufficient capital. - RMC responsibilities and structure: - Set scope of risk framework and policy, ensure compliance, oversee risk activities, recommend improvements, and establish risk mitigation plans in stressed circumstances. - RMC must be approved by the Board, meet and report quarterly; prescribed to have at least five members, at least one of whom is a Board member. - RMC is supported by a Risk Management Unit. - Internal Control (Notification on Internal Control 2014): - Board and senior management duty to establish an internal control policy consistent with consolidated risk management policy. - Internal control must cover receiving and paying money, compliance monitoring, internal audit, organizational structure, delegation of powers, rules and authorizations, allocation of personnel, budget, and IT resources. - Requires written manual, training/communication for employees, and regular assessment of internal control adequacy. ### Effective control functions: roles and responsibilities - Four required control functions must have sufficient resources, board access, and independence from operations; board involved in hiring and remuneration review. - Risk Management Unit (Notification on ERM/ORSA 2018): - Identify, control and mitigate key risks; identify, assess and report on current and future risks; conduct regular stress testing; produce ORSA for internal and regulatory submission. - Compliance unit (Clauses 29–30, Notification on Internal Control 2014) duties include: - Provide recommendations and advice on compliance with laws; prepare written compliance manual; provide regular employee training. - Develop compliance risk management system: identify, assess, determine risk management methods, monitor, and report on changes in compliance risks. - Coordinate to prepare and implement annual compliance risk management plan with timeframes and unit responsibilities. - Help ensure compliance and report annually to the board or audit committee. - Coordinate with the OIC and act as point of contact on tasks including AML/CFT. - Internal Audit unit (Clauses 24–28, Notification on Internal Control 2014) duties include: - Review and report accuracy and completeness of accounting records. - Ensure internal control system sufficiency and efficiency. - Audit performance of internal units for legal and Office requirements compliance. - Examine efficiency and effectiveness of risk management system against consolidated framework and policy. - Assess safeguarding of company and insured assets and existence of assets. - Investigate fraud, errors, omissions, and irregularities. - Assess IT systems for internal control and business continuity, including data backup. - Assess reliability of reporting systems, confidentiality, whistleblower protection, and monitoring. - Prepare internal control assessment reports specifying material findings, recommendations, and rectification, and submit to audit committee or board. - Maintain working papers and audit evidence; prepare an audit plan in writing for audit committee approval. - Actuarial function (Notification on ORSA) duties include, but are not limited to: - Evaluate insurance liabilities, policy provisions, aggregate claim liabilities, and reserves for financial risks. - Asset-liability management regarding adequacy of assets and future revenues to cover obligations and capital requirements. - Evaluate investment policies relative to required returns for benefit payments and valuation of assets applicable to small insurers. - Assess insurer’s solvency position and calculation of minimum capital required for regulatory purposes and provisions. - Conduct prospective solvency assessments via capital adequacy assessments and stress tests under various scenarios. - Advise on risk assessment, management policies, fair treatment of policyholders, underwriting policy adequacy, reinsurance arrangements, product development and pricing, data sufficiency and quality, internal models, and other actuarial/financial matters assigned by the Board. - Appointment and reporting: - Control function heads are appointed by the board or board committees except for head of compliance and head of actuarial control function, who are appointed by the executive and report to the board. - All control function heads must have independent access to the board and be independent from operational programs. ### Outsourcing and supervisory oversight - Outsourcing: - OIC allows outsourcing of control function duties, but the board remains responsible for delegated work and must ensure accuracy, efficiency, and timeliness. - Service agreements must allow OIC access to information for inspection. - Supervisory practice: - OIC reviews corporate governance frameworks offsite, including company risk management policies, three-year business plans, board self-assessments, and committee minutes. - Onsite examinations include interviews with directors, senior management, and heads of internal audit and risk management units to ensure compliance and adequacy. - Assessment Observed and recommendations: - While Notification 2018 is new, many requirements were present in earlier OIC guidance and have been used for several years. - As many governance, risk management and internal control requirements are principle based, it is recommended that the OIC continue to closely monitor their application by insurers over the next supervisory cycle. *Source: https://www.imf.org/-/media/files/publications/cr/2019/1thaea2019005.pdf* ### Section 48 of the LIA, and Section 51 of the NLIA, give the OIC authority to conduct offsite ### Section 48 of the LIA, and Section 51 of the NLIA, give the OIC authority to conduct offsite ### Legal authority and information powers - Sections referenced granting OIC powers: - Section 48 of the LIA, and Section 51 of the NLIA: authority to conduct offsite monitoring and onsite examinations. - Section 43–45, and 48 of the LIA and Section 47–49, and 51 of the NLIA: broad powers to request documents and other information from an insurer or people associated with an insurer. - Notification Re: Rules, Procedures, and Conditions on Preparation of RBC Report of Life/Non-life Company, 2011: sets scope, content and frequency of RBC report submissions. - OIC can require insurers to report significant changes to their corporate governance. ### Outsourcing, access to service providers, and prohibited outsourcing - OIC authority to request information and examine outsourced activities; approval required for certain outsourcing: - Pursuant to Section 36 of the LIA and Section 35 of the NLIA, certain activities cannot be outsourced without OIC approval. - Claims management activity (excluding reinsurance) is included in activities requiring OIC approval for outsourcing. - Underwriting activities cannot be outsourced under any circumstances. - Where outsourcing is permitted by the OIC, Clause 9 of the Notification Re: Rules, Procedures, and Conditions for Indemnity or Compensation under Insurance Contracts by Non-life Insurance Companies, B.E. 2559 (2016) requires the company to: - exercise oversight and control; and - make testimony, provide opinions, or submit relevant documents and evidence to the OIC upon request. - Notification of the Office of the Insurance Commission Re: Guidelines for Outsourcing by Insurance Companies requires written agreements with service providers 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 related to the service. ### Supervisory framework (risk-based) - Framework characteristics: - Risk-based approach broadly modeled on the Canadian Office of the Superintendent of Financial Institutions supervisory framework. - Uses both offsite monitoring and onsite examinations. - Supervisor defines significant activities and assesses six categories of inherent risk: Strategic risk, Insurance risk, Market risk, Credit risk, Operational risk (includes compliance risk), and Market Conduct risk. - Supervisor examines governance, risk management, and internal controls to assign a net risk rating by significant activity; net risk ratings are aggregated into a single net risk rating for the institution. - Supervisor examines capital, profitability, and liquidity to assign a composite risk rating for the institution. - Composite risk rating and supervisory judgement determine level of intervention against a ladder of intervention and inform the annual onsite plan. - Internal memoranda: - “The Early Warning System (EWS) and Triggers for Early Intervention” - “Risk Focused Examinations” ### Regulatory reporting - Frequency and audit/review requirements: - OIC requires financial statements, and financial and operational reports on an annual and a quarterly basis. - The Notification on Submission of Financial Statements and Report on the Operations, 2016: sets information requirements to be submitted periodically. - All annual financial statements must be audited and quarterly statements must be reviewed by the auditor. - Examples of additional periodic reports required: - Reporting on investments in other businesses. - Actuarial report. - Reinsurance report. - Off-balance-sheet exposures, material outsourcing, and changes to corporate governance (including changes to key personnel in charge of control functions) are considered as part of offsite reporting. - OIC regularly reviews reporting requirements; many requirements introduced in 2016 and some modified as recently as in 2018. ### Offsite analysis - Focus areas: - Financial position of insurers, trends in financial position and operations, corporate governance, compliance, and market conduct. - Documents reviewed: - Quarterly and audited annual financial statements, annual reports, financial statement notes, external audit reports, the written corporate governance framework (and any changes), the three-year business plan, the risk management policy, actuarial report, and the latest offsite analysis report. - Two levels of analysis: - A-level analysis: - Overview of the company's key activities and analysis of financial information against its EWS indicators. - Every insurance company is analyzed on a quarterly basis. - Tied to major risks: Strategic Risk, Credit risk, Market risk, Liquidity risk, Operational risk, and COB. - B-level analysis: - More in-depth analysis of issues or concerns identified by A-level analysis affecting the company's financial position. - Uses additional financial ratios and trend analysis. - Includes analysis of major activities: underwriting, pricing, claims management, asset and liability management, reinsurance, and investment. - EWS indicators: - Include indicators of capital adequacy, profitability, asset quality, and liquidity management. - In 2018, updated to include some COB indicators for life insurance and the ability of non-life companies to finance potential expansion. ### Onsite supervision - Annual onsite supervision plan developed using offsite information and inputs from other OIC departments. - Five features considered in annual plan and insurer prioritization: - Offsite assessment of the insurer. - The insurer’s composite risk rating from previous assessments. - The length of time since the last examination. - The insurer’s complaint ratio (number of complaints/number of in force policies). - The insurer’s market share. - Four types of examinations: - Full scope examinations: - Assess inherent risk for all significant activities and mitigation via governance and internal controls. - All six risk categories assessed. - Solvency, Earning, and Liquidity determined based on CAR, ROE, and liquidity ratio to set a composite risk rating. - Information reviewed includes governance framework, business plan, risk management and internal control systems, committee minutes, interviews of key directors and staff, and written policies and procedures by key department. - Cycle targeting: - Currently targeted for all insurers over a three to five-year cycle. - Previously carried out over a maximum seven-year cycle. - Out of 83 companies: - two companies had a six-year cycle; - four companies had a seven-year cycle; - the other 77 companies had a five-year cycle or less. - The CAR ratio of each of those six companies was in excess of 250 percent. - Targeted examinations: - Focus on specific issues or concerns drawn from other analysis that might significantly impact present or future operations (e.g., investment in loans secured by real estate). - Help guide future offsite monitoring and frequency of onsite examinations. - Thematic examinations: - Assess issues or concerns with implications across multiple insurers, typically compliance with new regulatory requirements or problems with a line of insurance business. - Emergency examinations: - OIC can conduct emergency examinations without warning; used carefully and in special circumstances. - In 2018, two such emergency examinations were conducted. - Reporting and follow-up: - OIC provides 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. - Procedures exist to follow up on previous findings; when a company corrects all issues on a Fact Findings Report, the onsite team will then visit to review whether the company has fully addressed the issues. ### Conduct of Business (COB) supervision and insurance groups - COB supervision currently: - Largely carried out through analysis of individual complaints, company complaint statistics, and onsite analysis of policies and procedures. - OIC plans to augment practices including more thorough analysis of insurer and intermediary COB policies and reporting, and targeted and thematic examinations of COB. - Insurance groups: - OIC has identified a number of insurance groups operating in its market. - 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 information sharing but generally supervises on an individual insurer basis. ### Assessment, status, and recommendations - Assessment result: Largely Observed. - Key reason for rating: - OIC has made significant progress developing and implementing a good supervisory framework for insurers. - The rating reflects that some of the current framework is new (post 2016) and has not been tested by a full onsite cycle with all institutions. - Recommendations for OIC to consider: - Documenting and publishing a high-level supervisory framework document that describes basic principles, high level concepts, and core processes guiding supervision of insurers. - Developing more specific guidance to help staff and industry in emerging operational risk areas (e.g., cyber risk) to increase transparency and consistency of supervision. - Augmenting supervision of COB requirements for insurers and intermediaries to include fuller examination of policies, procedures, and practices once new requirements are assimilated; consider introduction of more thematic examinations in due course. ### ICP 10 — Preventive and Corrective Measures (Unauthorized Insurance Activities) - Legal prohibitions: - Section 17 of the NLIA and Section 18 of the LIA: no person shall act as an insurer by entering into an insurance contract unless licensed. - Penalties for acting without a license (pursuant to Section 86 of the NLIA and Section 91 of the LIA): - Fine ranges between THB 200,000 and THB 500,000 (US$6,000 and US$16,000). - Ongoing penalty of THB 20,000 per day (US$300). *Source: IMF content unit 1thaea2019005 — Section 48 of the LIA, and Section 51 of the NLIA, give the OIC authority to conduct offsite* ### Section 63 of the NLIA and Section 68 of the LIA require any person wishing to act as an ### 1thaea2019005 - Section 63 of the NLIA and Section 68 of the LIA require any person wishing to act as an ### Licensing and unauthorized intermediary activity - 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. - Recent supervisory activity: - OIC has dealt with several cases of unauthorized activity from insurers and principally unlicensed agents and brokers. - Such cases are referred to the Royal Police for investigation and prosecution. ### Power to take corrective and preventive measures; ladder of intervention - OIC supervisory approach: - Initial remedial action via discussion with insurers and increased supervision ("moral suasion"). - If voluntary remediation insufficient, statutory enforcement powers may be used. - Statutory enforcement powers (selected): - Sections 52 (NLIA) and 53 (LIA): Registrar, with Commission approval, can order an insurer to improve conditions/operations within a specified timeframe and require capital increases. - Section 53 (NLIA) and Section 54 (LIA): Commission can order removal of directors/persons responsible. - Section 55 (LIA): Registrar may request the Minister to issue an order taking control of the company. - Section 59 (NLIA) and Section 64 (LIA): Minister may revoke insurer's license. - Early Warning System (EWS) — 4 intervention levels (based on CAR and EWS ratios): - Level 1: - CAR not less than 180 percent. - Regular monitoring, offsite monitoring, interview executive at least once a year, onsite exam at least every 5 years. - Level 2: - CAR more than 140percent but less than 180percent. - Some EWS ratios may be outside acceptable ranges; net risk low to medium. - Additional actions: Management Discussion and Analysis Report, formal notification of concerns, exams every three years, monitor corrective actions. - Level 3: - CAR more than 100percent but less than 140percent. - Some EWS ratios outside acceptable ranges; net risk medium to high; financial reports may lack reliability. - Additional actions: formal "Watch list", full monthly reporting, closer scrutiny, three-year capital plan and stress testing, annual examination, possible special audit or independent director engagement. - Level 4: - CAR lower than 100percent or operating in manner harmful to customers or unsustainable. - Net risk high to very high. - Additional actions: prepare for legal processes associated with involuntary wind-up, prohibition on business expansion if capital below required, orders to increase capital, remove directors/personnel, consider taking control, consider revocation of license. - Assessment and recommendation: - Assessment: Largely Observed — OIC’s ladder defers strongest powers until very serious deterioration; lacks a clear stage focused on preparing for orderly wind-up. - Recommendation: Consider modifying ladder to add a stage focused on preparing for orderly wind-up of insurer as a gone concern. ### Enforcement framework, penalties and administrative processes - Legal powers and penalties: - Sections 84 to 112/2 (NLIA) and Sections 89 to 117/2 (LIA): penalties including fines and, for some contraventions, imprisonment. - Section 110 (NLIA) and Section 116 (LIA): OIC can seize insurer property in certain circumstances. - Clause 24 Insurance Commission Notification on Investment: OIC can suspend insurer investments that are inconsistent with policy framework or operational capability. - Clause 7 Registrar Notification on Report on Capital Fund: OIC can order procurement of another CPA and/or actuary acceptable to Registrar to review/audit insurer at insurer’s expense. - Section 111/2 (NLIA) and Section 117/2 (LIA): OIC may publish information on contraventions. - Section 108 (NLIA) and Section 114 (LIA): criminal sanctions upon directors if certain offences occurred. - Administrative Procedure Act (APA) Section 58(1): failure to comply with OIC direction can result in penalty of THB 20,000 per day; seizure of assets if administrative fine unpaid (Sections 61 and 57 APA). - Settlement Committee: - Special body comprising senior government officials (including Permanent Secretary of MOF, senior police official, Secretary General of OIC) empowered to hear cases and assign penalties; decisions appealable to court system with grounds specified in Section 9 of Establishment of Administrative Court and Procedure Act. - Observations and recommendations: - OIC lacks power to take control of non-life insurers; currently relies on temporary underwriting suspension and license revocation. - Assessment: Largely Observed. - Recommendations: - Add power to take control of non-life insurers to OIC’s legislative powers. - Implement proposed legislation to increase OIC powers over intermediaries including suspension of intermediary licences and issuance of administrative orders. - Consider powers to require restitution by insurers or intermediaries for harm caused to customers. ### Winding-up and exit from the market; policyholder protection - Legal framework: - Sections 51 and 65–67 (LIA), Sections 57 and 60–62 (NLIA): procedures for winding-up and exit; appointment of liquidator; use of security deposit and reserves to pay policyholder/beneficiary claims. - Policyholder guarantee funds: - Compensation fund prescribed limit: THB 1,000,000. - Time limit to apply to guarantee fund: 60 days from date insurance creditors receive notification from the fund. - If fail to apply within 60 days, still entitled to payment from guarantee fund within 10 years (Section 85/5 LIA and Section 80/5 NLIA). - Priority of policyholder claims: - Policyholders may pursue balance beyond guarantee fund limit from company assets in bankruptcy. - Policyholders rank below secured creditors and tax creditor, but ahead of general creditors (section 26 of NLIA and LIA and 130 of Bankruptcy Act). - Specification of winding-up point: - Legislation does not define a specific point at which insurer must cease business (e.g., mandatory license suspension or revocation at a defined CAR). - Assessment: Largely Observed. - Recommendation: Amend legislation to establish a clear point at which continuation is impermissible (e.g., CAR < 100 percent or Commission finds insurer presents significant/unreasonable risk), possibly tied to ladder of intervention. ### Reinsurance and risk transfer (ICP 13) - Market and structure: - Thailand has one domestic life reinsurer (Thai Re Life) and one domestic non-life reinsurer (Thai Re). - No requirement for minimum cessions to domestic reinsurers; no state-owned reinsurer. - Cessions by Thai life insurers: less than 1percent of gross premium for ordinary life; approximately 5percent for group business. - Cessions by non-life insurers: 12percent of gross motor premium in 2017 to over 50percent for other lines. - Reinsurance regulation highlights: - Notifications on Reinsurance (2018) are principles-based and ICP 13-compliant; Board must establish and approve reinsurance framework within ERM. - Limits on cessions to foreign reinsurers based on credit ratings (example using S&P): - A- or higher: not limited. - BBB- to BBB+: limited to 50 percent of foreign reinsurance premiums. - Below BBB- or non-rated: prohibited. - For domestic reinsurers, CAR-based equivalence: CAR 300 percent = AAA; CAR 150 percent = BBB. - Prohibitions and limits: - Financial/finite reinsurance contracts or where no significant risk transfer are prohibited (e.g., less than a 10 percent probability of a 10 percent loss to reinsurer). - Risk transfer to capital markets not permitted; special purpose entities not permitted. - Reinsurance credit risk controls: - Procedures to monitor financial stability and appropriateness of reinsurers, controls for transactions and balances, guidance for selection of reinsurance brokers. - Mandatory allocation of portion of unearned ceded reinsurance premium as a reserve for foreign reinsurers (funds withheld); can be reduced if collateral negotiated. - Reporting and supervisory processes: - Insurers must submit copies of reinsurance contracts at Registrar’s request and annual reports including reinsurance strategy, executives responsible, prior-year operating results, assessment of effectiveness. - Sub-notification requires annual and quarterly reinsurance data: summaries of outward/inward treaties; outward premium amounts with reinsurer credit ratings or CAR; details of new treaties within two months after effective date. - OIC offsite and onsite monitoring includes retention/ceding ratios, reinsurer risk profiles, reinsurance accounting, reinsurance concentrations, and stress after large losses (e.g., 2011 floods). - Ongoing initiative: - Draft 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 public hearing to encourage foreign reinsurers to operate via branches. - Assessment and recommendations: - Assessment: Observed. - Recommendations: - Require domestic insurers ceding material risk to foreign reinsurers to perform ongoing credit risk assessments as part of ERM, not rely solely on ratings. - Provide additional guidance for selecting reinsurers, including supervisory regime evaluation. - Consider legal strengthening for security of reinsurance recoverables from foreign reinsurers with no domestic presence. ### Valuation for solvency purposes (ICP 14) - Framework: - OIC Notifications on Asset and Liability Valuation (2011) apply to domestic insurers and branches. - TFRS used for general purpose financial reporting; OIC relies on TFRS for solvency reporting but with prescriptive elements. - Any differences between TFRS and OIC solvency reporting must be publicly disclosed. - Valuation principles and practices: - Market-valued assets where recent trades exist; derivatives and policy loans at fair value; properties at appraised value; reinsurance assets valued consistent with underlying liabilities. - Non-listed securities: mark-to-market if recent objective market values exist, otherwise mark-to-model. Changes in model require OIC approval; OIC may call valuation expert. - Loans valued at principal or recoverable amount adjusted for impairments; Discounted Cash Flow model commonly used. - Technical provisions: - Best Estimate (BE) and Provision for Adverse Deviation (PAD) required; BE and PAD equivalent to IAIS terms. - PAD and BE calibrated to achieve 75th percentile over a 1-year horizon (VaR), floored at zero by major product segment; risk beyond 75th to 95th percentile captured in risk capital charges. - For life contracts: - Discount rate: greater of (i) current yield on zero coupon government bonds, or (ii) weighted average of zero coupon government bond yield at end of 8 previous quarters weighted 51 percent current quarter and 7 percent each of seven previous quarters. - For long-term contracts, GPV used to establish present value of net cash flows at the 75th percentile. - For investment elements, guaranteed and non-guaranteed benefits estimated separately; equity risk premium for non-guaranteed benefits subject to 6 percent cap. - For non-life: - NLIA Section 23: premium liability based on greater of unearned premium reserve or unexpired risk reserve calibrated at 75th percentile; claim liability comprises case reserve, ULAE, and IBNR using actuarial methods (Chain ladder, Bornhuetter-Ferguson). - Recognition/derecognition: - Regulation addresses measurement but not always recognition/derecognition; recommended clarification to reference TFRS for aspects not specified by OIC. - Assessment: Observed. ### Investment requirements (ICP 15) - Governance and responsibilities: - Notifications on Investment (2015) require Board to establish investment policy consistent with ERM, ALM, solvency, and operational capability. - Investment Committee of at least 3 persons required; insurers must submit investment policy framework annually; investment manual required and must be submitted if changed within 30 days. - Investment manager minimum qualifications mandated; if lacking, insurer limited to low-risk assets or must outsource. - Investment limits (percent of investment assets): - Thai Corporate bonds: Product Limit 60; Issuer Limit 15. - Equities: Product Limit 30; Issuer Limit 15. - REITs and Property Funds: Product Limit 20; Issuer Limit 10 (per fund). - Loans: Product Limit 20; Issuer Limit 5. - Bills supported by letters of guarantee: Product Limit 5; Issuer Limit 5. - Foreign Investment: Product Limit 15; Issuer Limit 5. - Subordinated debt instruments, Structured notes, Non-listed equities and Commodity funds: Product Limit 5; Issuer Limit 5. - Deposits with a financial institution: No product limit; Issuer Limit 30. - Thai Government bonds: No product or issuer limit. - Aggregated limit: a company’s investments in certain local debt instruments and structured notes may not exceed 60 percent of the company's investment assets in aggregate. - Counterparty (per entity) limits (percent of investment assets): - Thai Government, Bank of Thailand, MOF, or Financial Institution Development Fund: No limit. - Domestic Financial institutions: 30. - Organizations/state enterprises established by specific law, listed companies, or companies with credit rating at least investment grade: 15. - International organizations: 15. - REITs and Property Funds: 10. - Others: 5. - Security and safekeeping: - Insurers required to deposit 25 percent of assets with the OIC; remainder as "back-up assets" with approved custodians; custodians must report monthly to OIC. - Derivatives and structured products: - Derivatives permitted only for hedging with OIC approval; counterparties must be domestic financial institutions with investment-grade rating. - Securities lending/repurchase require collateral or haircut (Clauses 59–60 Life; 58–59 Non-life). - Investments in other businesses: - Interest over 20 percent of investee equity requires prior OIC approval; such investee becomes supervised and investee assets eliminated from insurer’s balance sheet for solvency purposes. - Assessment: Observed. ### Enterprise Risk Management and ORSA (ICP 16) - ERM history and framework: - Initial ERM notifications in 2008; updated notifications in July 2017 (effective 2018); ERM/ORSA notifications in 2019 require ORSA and enhanced ERM features. - Key features required by 2019 notifications: - Three lines of defense. - Risk management framework covering quantifiable and non-quantifiable risks (underwriting, market, credit, operational, liquidity, group, emerging risks) and including an actuarial function. - Risk appetite, prospective solvency assessment, risk register (top ten risks), stress testing (annual, including base, self-select, macroeconomic, financial crisis, pandemic, catastrophe; reverse stress tests), capital planning and contingency plans, group risk and fungibility considerations, reporting and feedback loop. - ORSA: annually, report approved by Board and submitted to OIC; assess current and projected solvency position using time horizon consistent with business planning. - Implementation: - OIC provided industry education and consultation; ORSA reporting begins in 2020; OIC actuarial team trained offsite and onsite teams for ORSA review. - Assessment: Largely observed. - Recommendations: - OIC should work with industry to enhance performance as new requirements are embedded. - Consider thematic/horizontal reviews and industry workshops once ORSA reporting begins to identify outliers and best practices. ### Capital adequacy (ICP 17) - Approach: - Thai RBC uses a total balance sheet, market-value-based approach; RBC standard formula applied to all insurers since 2011 (amended 2015). - OIC uses greater of current yield curve or smoothed yield curve over prior eight quarters for procyclicality mitigation. - Capital resources: - Tier 1 criteria: permanently available, loss-absorbing on going concern and winding-up, free of encumbrances, subordinated to policyholder/senior creditors, issued and fully paid-up and non-cumulative. - Tier 2: less permanent buffer; limited not to exceed Tier 1 amount. - No debt qualifies as Tier 1 or Tier 2. - Deductions from capital: intangible assets, goodwill, pledged/encumbered assets; investments in affiliates excluded from assets/capital resources. - Capital requirements and triggers: - CAR: set at 140 percent of the Minimum Capital Requirement (MCR). - MCR baseline: 100 percent as established under legislation. - Capital floor: THB 50 million for life insurers; THB 30 million for non-life insurers. - CAR below 140 percent triggers prescribed monitoring measures and supervisory risk ratings (linked to ICP 10). - Covered risks in RBC: - Insurance risk: - Non-life: reserve and premium risk estimated at 95 percent confidence level; no explicit catastrophe charge but OIC may require stress tests and management plans. - Life: mortality, morbidity, expense and lapse risks estimated at 95 percent confidence using GPV. - Credit risk: charges vary by tenor, obligor type, domicile, instrument nature, ratings, and domestic reinsurer CAR. - Market risk: prescribed risk charges (examples: equities on exchanges 16 percent; other equities 20 percent; home office real estate 4 percent; other real estate and operating assets 16 percent). - Concentration risk and surrender risk (life only) considered. - Operational, liquidity, and catastrophe risks currently not included in RBC but addressed in ORSA. - Group capital: - No insurer groups where OIC is group-wide supervisor; OIC reviews group-level details for Thai-domiciled insurers and participates in supervisory colleges. - RBC excludes reporting insurer’s investments in affiliates and does not include capital requirements for affiliates. - Assessment: Largely observed. - Recommendations: - Improve RBC by providing for operational and catastrophe risks. - OIC moving toward "RBC2" and may increase calibration from 95 percent to 99.percent VaR over one year once accounting standards (IFRS 17) implemented (anticipated in TFRS in 2023). ### Intermediaries (ICP 18) - Licensing and qualifications: - Section 68 (LIA) and Section 63 (NLIA): all agents and brokers must be licensed; >400,000 licensed intermediaries in Thailand. - Qualification exams administered by industry associations; additional exams for complex investment products set by SEC. - Suitability (fit and proper) requirements in Sections 64 and 67 (NLIA) and Sections 69 and 72 (LIA). - Initial licenses: one year; at third renewal, licences issued for five years. - Agents may represent up to two insurers with insurer permission. - Corporate broker requirements include at least two authorized directors who passed exams and held personal broker license for at least one year; corporate brokers must maintain minimum capital fund 1,000,000 Baht (approximately $33,000 US). - No mandatory personal indemnity insurance for agents/brokers (many brokers purchase voluntarily). - Supervision and resources: - OIC maintains offsite, onsite, and targeted reviews; head office and 69 regional offices in 9 provincial districts. - OIC supervises more than 740 brokers (about half inactive); conducted approximately 40–50 broker onsites per year over last three years. - Onsite review risk categories: sales conduct, operational, credit/reputation, liquidity, governance, AML/CFT, data protection, continuity. - Conduct and disclosure: - Notifications set conduct and disclosure requirements: identification of licence and companies represented; obtain consent to offer; use only insurer-approved sales materials; explain disclosure and consequences of false statements; avoid abusive/pressure selling; understand customer needs; disclose coverage terms, premiums, payment periods; manage conflicts of interest; prohibition on churning, false advice, coercive tied selling. - Weaknesses: little guidance on defining/dealing with perceived or potential conflicts; no requirement to disclose basis or amount of compensation to clients. - Client money handling: - Brokers required to have separate bank accounts for client money and forward funds to insurers promptly; agents/brokers must deliver application form and premiums to company no later than following working day. - Regulatory enforcement: - Penalties available under Section 81 (LIA) and Section 76 (NLIA). - Legislation under development/passed to grant OIC power to issue administrative orders to licensees and suspend licences, including increased fines. - Assessment: Largely Observed. - Recommendations: - Amend legislation to require intermediaries to disclose amount and/or basis of compensation to clients. - Provide greater OIC guidance on handling perceived/potential/actual conflicts of interest. - Implement legislation granting OIC power to issue administrative orders and suspend licenses (underway). - Consider establishing mandatory professional indemnity insurance for intermediaries. ### Conduct of Business (ICP 19) - Legal and regulatory framework: - Key notifications: Notification 2018 (procedures for issuing/offering insurance policies and duties of agents/brokers/banks); Notification 2016 (claims/complaint handling); Notification 2013 (advertising). - Notification 2018 emphasizes fair treatment of customers embedded in insurer/intermediary culture and governance. - Product development and distribution: - Policy wording and premium ranges require OIC approval; OIC conducts consumer-focused product reviews. - Standard policies used for common retail products; additional scrutiny for non-standard products. - Pre-contractual and point-of-sale information: - Notification 2018 specifies timing, clarity and adequacy of pre-contractual and contractual disclosures, including name of insurer, product type, key features, exclusions, cancellation and complaint rights. - Cooling-off periods often 15 or 30 days. - Advice and suitability: - Fact-find required prior to sale of complex life investment products; insurer responsible for control of advice provided by intermediaries. - Claims and complaint handling: - Notification 2016 requires claims paid "without delay", proactive insurer efforts to locate insured, claims department, complaint handling unit led by senior manager, and for high-value/complex claims a complaints committee with legal/underwriting representation. - Consumers have access to OIC mediation and arbitration; insurer participation mandatory; consumer use of mediation/arbitration discretionary. - Alternative distribution channels and privacy: - Notification on Offering for Sale through Electronic Means addresses e-distribution. - Strong requirements to protect consumer information in possession, but limited safeguards on use for marketing/cross-selling. - Assessment: Largely Observed. - Recommendations: - Develop guidance on use of client information for cross-selling and ancillary purposes in conjunction with industry associations. - Consider an industry complaint handling system to collect standardized data from all insurers and brokers on complaint volumes, types, and remediation. ### Public disclosure (ICP 20) - Disclosure regime: - 2008 Notification replaced by 2018 Notification on Public Disclosure effective October 1, 2018; Commissioner’s Order 47/2561 (life) and Order 48/2561 (non-life) set templates and timing. - Quarterly and annual quantitative and qualitative disclosures required: company profile, governance, ERM/ALM, underwriting and reinsurance risks, valuation methods and assumptions, investments, capital adequacy and CAR, audited financial statements. - Specific quarterly disclosure requirement: CAR (percent), Total Capital Available (TCA), TCR, total assets and liabilities, insurance contract liabilities, shareholders equity. - TFRS-based audited financial statements required; differences between TFRS and solvency reporting must be disclosed. - OIC oversight: - OIC monitors disclosures on insurers’ websites quarterly and requests corrections for deficiencies. - Assessment: Largely observed. - Recommendation: - Amend notifications to explicitly require disclosures addressing key assumptions for ALM, capital/provisions tied to asset-liability mismatches, and financial performance by segment; consider consolidating disclosure requirements to more explicitly cover risks arising from insurance contracts beyond reliance on TFRS. ### Countering fraud (ICP 21) - Legal coverage: - All fraud, including insurance fraud, covered by Criminal Code (Sections 341 to 347) and Civil and Commercial Code (Sections 879 and 895). - Sanctions: fines, imprisonment or both. - Penalties imposed on persons/entities committing fraud; insurers not penalized solely for having incurred losses from fraud by others. *Source: https://www.imf.org/-/media/files/publications/cr/2019/1thaea2019005.pdf* ### Section 43 of the NLIA provides that a responsible investigating officer under the ### 1thaea2019005 - Section 43 of the NLIA provides that a responsible investigating officer under the ### Suspension orders, penalties, and insurance-fraud profile - Section 43 of the NLIA allows a responsible investigating officer under the Criminal Procedure Code to request the OIC to order an insurer to suspend payments involving suspicious claims pending an investigation. - Penalties for non-compliance: - Fine up to THB 500,000. - Additional fines up to THB 20,000 for every consecutive day that the violation continues. - Principal types of insurance-related fraud in Thailand: - Staged accidents and thefts to claim motor insurance. - False claims for medical fees and hospital benefits (industry data: nearly THB 246 million from 2014–2016). - Premiums diverted by licensed intermediaries and others posing as intermediaries. ### Legislative amendments to LIA/NLIA (February 14, 2019) and timing - Parliament passed bills on February 14, 2019; they will become effective approximately six months thereafter. - Amendments covering insurance fraud activities include (verbatim provisions from source): - Any person who in bad faith deceives any other person to enter into a life insurance agreement and by such deception receives a financial reward or benefit shall be liable to imprisonment, or a fine, or both. Where the offence is committed through making false statements to the public, or concealment of any fact should have been notified to the public, the offender shall be liable of a major offence which leads to severe punishment. - Where the offence is committed through making false statements to the public, or concealment of any fact should have been notified to the public, the offender shall be liable of a major offence. - Any person who in bad faith makes fraudulent claims will be liable to imprisonment, a fine, or both. A person who assists or facilitates any other person in committing the offence shall also be subject to punishment. - Any person who agrees to give a financial reward or benefit to or for a director, person who has power of management, an officer, employee or person authorized by the company, in order to induce compensation or payment or provision of benefits under an insurance policy shall be liable to imprisonment, a fine, or both. - A person who agrees to accept any benefit for him or herself in order to receive compensation or payment or benefits under an insurance policy shall be liable to imprisonment, a fine, or both. ### Regulatory guidance and internal controls - Notification on Internal Control, 2014: - Assigns insurer’s internal audit unit responsibility for “investigating fraud, errors, omissions and other irregularities.” - Requires reporting on “material items found upon inspection, including recommendations and rectification of deficiency and submitting the report to the audit committee or the board of directors.” - Clause 36: if the audit committee “finds any fraud or act which seriously affects the company's financial position and operating results” it must report to the board without delay; if not rectified timely, any audit committee member must report the matter to the OIC. - Industry coordination: - OIC meets regularly with Life Insurance Association and Non-Life Insurance Association to collect and analyse fraud-related activities. - A multi-association committee (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 was established; after its first meeting in June 2018 it agreed to issue a fraud prevention handbook by early 2019. - OIC engages with the private sector Collective Action Coalition Against Corruption (CAC) and encourages insurers to be CAC members and adopt CAC’s Fraud Risk Management Framework. ### Notification on Fraud Risk Management 2018 (scope, requirements, timing) - Key prescriptions and required measures (verbatim where provided): - Procedures and measures to manage the risk of insurance fraud, including management’s responsibility to oversee the effectiveness of fraud risk management systems. - 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). - Policy must be communicated throughout the entire organization and regularly reviewed taking into account changing internal and external circumstances and lessons learned. - Policy must be part of the company’s risk management framework required in the Notification on Risk Management 2017. - Requires insurers to establish fit and proper standards for members of the Board, senior managers and other staff, and intermediaries. - Requires client acceptance procedures including Know Your Customer and Customer Due Diligence (CDD). - Requires claim assessment procedures to mitigate the risk of claims fraud. - Provides 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 and establish an ethical culture; provide regular training on fraud matters for board members, senior management and other staff as appropriate. - Whistleblowing: - 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.” - Whistleblowers are not provided immunity under Thai law. - Operational requirements and timing: - The Notification of Fraud Risk Management 2018 will go into effect July 2019. - Insurers must assign suspected fraud cases to designated person(s) for review and investigation. - Investigations must be conducted by appropriate personnel, independent of the business unit where alleged conduct occurred. - Incident reports must be provided to the audit committee on a quarterly basis. - For fraud or acts with potentially material impact to financial position, business, reputation or operating results, the audit committee must report to the board for rectification; the report also is to be submitted to OIC unless there is any action to recover such material fraud events in a timely manner. - Insurers must establish and maintain a fraud database; monitor and review fraud risk management annually; submit a three-year business plan and risk management policy to OIC; conduct internal reviews of their fraud prevention scheme. - Requirement for insurers to collect fraud data is a key element because OIC has powers to act against fraud if evidence exists. - OIC can access data from individual insurers’ fraud databases on a consolidated platform. - OIC’s litigation unit includes three full-time staff, supplemented by a multi-departmental OIC committee. - OIC’s onsite inspections check for compliance with fraud risk management requirements. ### Assessment, observations, and recommendations on fraud framework - Assessment: Largely observed. - Comments supporting assessment: - The new notifications on fraud (2018) have only recently been enacted and do not go into force until mid-2019. - The LIA was 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 an insurer be reported to the OIC if the company has rectified the matter within a timeframe deemed appropriate by the audit committee; current language suggests some material fraudulent acts may not be required to be reported to the OIC. - Recommendations (verbatim style): - Avail itself of the data that will soon be available through fraud databases at insurers and consider a centralized fraud database at the OIC to analyze bad actors and their actions across the sector, identify trends, and work with insurers and industry trade organizations to be more proactive in combatting fraud. - Amend the notifications to require that any fraud or act that may have a material impact on an insurer be reported to the OIC on a timely basis, whether or not the insurer may have rectified the matter. ### AML/CFT supervisory framework (ICP 22) - Institutional roles and legal basis: - The Anti-Money Laundering Office (AMLO) is the designated AML/CFT supervisory authority in Thailand since the amendment of the Anti-Money Laundering Act (AMLA) in 2013. - Sections 40)3/1( and )4( of AMLA prescribe AMLO as the main state authority for AML/CFT regulation and supervision, to establish guidelines, examine, monitor and evaluate implementation in cooperation with sector-specific supervisors (BOT, SEC, and OIC). - Requirements and guidance references: - Section 13 of AMLA specifies transaction reporting to include suspicious transaction reporting (STR) requirements. - The Ministerial Regulation on Customer Due Diligence (MR CDD), Section 4 and Section 20/1 of AMLA, set out customer acceptance, risk assessment and management, CDD and ongoing monitoring requirements. MR CDD also sets requirements on correspondent banks, wire transfer, new technologies, reliance on third party, internal controls, foreign branches and subsidiaries, high risk countries, tipping-off, and confidentiality. - Coordination and inspection powers: - AMLO’s inspection authority is in Section 40(3)/1 and 40(4) of AMLA; OIC’s inspection power is in the LIA/NLIA. - OIC coordinates with AMLO in accordance with a Memorandum of Understanding of April 2010. - OIC focuses on AML-related systems and procedures in place at insurers; if non-compliant with AMLO requirements, OIC informs AMLO and AMLO may investigate or join OIC’s examination team; AMLO proceeds under its law and has access to the sanctions list, whereas OIC does not. - AMLO and OIC meet annually to share findings across the insurance sector. - Risk assessments and participation: - Thailand participated in the World Bank’s National Risk Assessment on AML/CFT in 2013; OIC participated. - Asia/Pacific Group on Money Laundering (APG) Mutual Evaluation (December 2017) reported insurance presented the lowest money laundering and terrorism financing risks among the financial sectors studied. - OIC participated in AMLO sub-committees and helped draft an insurance Sector Risk Assessment concluding the insurance sector risk and vulnerability is low. - OIC supervisory measures and requirements (verbatim-style lists in source): - Product and premium rate approvals process: Insurers must present and certify AML/CFT risk mitigation measures according to AMLO Notification on mitigation of AML/CFT risk from new products, services and technology 2013. - Internal Controls: Clause 35 of Notification on Internal Control requires insurers to establish compliance and audit systems for AML/CFT. - Sale of insurance products and claim payment via electronic means: Clause 4 of Notification on insurance selling via electronics requires insurers to comply with AML/CFT regulations and other relevant regulations. - Assessment: Observed. ### Group-wide supervision (ICP 23) - Profile of 83 insurance entities in Thailand broken into categories: - Category 1: comprised of 34 insurers or branches (11 life, 23 non-life) backed by foreign insurers. Foreign investment in domiciled insurers currently capped at 49 percent (can be increased in certain circumstances with OIC approval). Group-wide supervisory responsibility rests with home jurisdiction, not Thailand. - Category 2: comprised of 6 insurers (4 life, 2 non-life) that are part of Thailand-based financial conglomerates for which the BOT serves as the group-wide supervisor. - Category 3: comprised of 7 Thai insurers (2 life, 5 non-life) that hold more than 20 percent of the shares of an insurance company in another jurisdiction; foreign operations are immaterial to the group (subsidiary insurers in Cambodia and Laos with aggregate annual premiums of US$ 62,000); OIC does not formally apply group-wide supervisory measures to these groups. - Category 4: the remaining 36 insurers operating only in Thailand. - OIC’s supervisory focus and activities: - OIC does not serve as group-wide supervisor for any group; focuses on legal entity supervision, ring-fencing of funds supporting Thai-based insurance obligations locally, and participates as an involved supervisor in supervisory colleges and information exchanges. - OIC has participated in supervisory colleges hosted by group-wide supervisors in Australia, Hong Kong, and Japan for some Category 1 entities. - For Thailand-domiciled financial conglomerates (Category 2), BOT is group-wide supervisor; OIC participates in supervisory colleges and a three-regulator steering committee (OIC, BOT, and SEC) with subordinate working groups. - If a Thai insurer desires to hold more than 20 percent equity in an investee, prior OIC approval is required; approved investments subject to OIC supervision; aggregate cap: such investments may not exceed 15 percent of the company's total assets. - Assessment: Observed. ### Macroprudential surveillance and stress testing (ICP 24) - Organizational and data arrangements: - Insurance Stability Policy Department performs macroprudential surveillance and collects/analyzes information on a quarterly basis. - Primary data sources: quarterly financial reports from each licensed insurer, electronically submitted and housed in OIC’s financial repository accessible via XML. - Macro data considered: GDP statistics, unemployment rate, inflation rate, exchange rate, bank sector exposure measures, fiscal balance, risk indicators for credit and market risk, and insurance market measures. - Cross-sector data on insurer exposures to other financial institutions and assessment of Interconnectedness. - Insurance Stability Dashboard: - Over 50 quantitative risk indicators are collected and aggregated into an Insurance Stability Dashboard. - Dashboard enables quantitative assessment with criteria to display risk as lower, medium or higher and allows side-by-side comparison of an insurer to the sector. - Scoring methodology considers historical trends, absolute level of current risk, volatility, current risk environment and supervision targets via threshold and horizontal reviews. - Stress testing framework and findings: - Emphasis: interest rate risk most significant for life insurance; catastrophe risk most significant for non-life. - Five OIC-prescribed top-down scenarios: 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 (minimum interest rate at which insurer remains able to meet solvency requirements). - Insurers also conduct bottom-up stress tests. - All test results currently indicate high tolerance of the insurance system to stress factors with little to no spillover effect to other financial sectors. - OIC conducted internal stress tests of the life insurance sector in 2016 due to rapid interest rate reduction; industry showed overall capacity to tolerate still lower interest rates though a few insurers showed potential adverse solvency positions and were required to discuss recovery plans with OIC. - Reporting and coordination: - OIC communicates stress test results with insurers’ senior management; insurers must present results, recovery plan and risk reduction strategies to the board and submit minutes to OIC. - Annual Financial Stability Report produced by a working group of BOT, OIC, and SEC; FSR publicly available on OIC website. - OIC publishes overall insurance market data monthly or quarterly on its website. - Coordination fora include: Joint Monetary Policy Committee (MPC) and Financial Institution Policy Committee (FIPC); Three-regulator Steering Committee; Financial stability working group. - Systemic assessment: - OIC assesses systemic importance using size, interconnectedness, asset liquidation, and substitutability; generates a score distinguishing insurers below/above a threshold. - Process modeled in part on IAIS G-SII methodology but tailored locally; developed in 2017 and carried out annually with two years of data before confirming changes. - Results indicate no insurer is, or has been, systemically important to wider financial or insurance systems in Thailand. - Assessment: Observed. ### Supervisory cooperation, coordination, and crisis management (ICP 25 and ICP 26) - Domestic coordination (BOT, SEC, OIC): - Semi-annual 3-Regulators Meetings since 2009 covering financial stability, sector development, common regulatory interest, ASEAN financial integration. - Working groups under 3-Regulators Steering Committee execute action plans, including harmonized macro stress test framework. - Joint mystery shopping exercise for banking, securities and insurance products offered by bank branches to raise market conduct standards. - Domestic supervisory colleges hosted by BOT since 2015 to promote information sharing and monitor group risks. - MOUs: OIC with BOT and SEC (amended 2018) and with AMLO (2011). - International cooperation: - OIC participated in supervisory colleges for QBE Group (exited Thai market), AIA Group, Tokio Marine Group, MS & AD Group, and FWD group. - OIC signed MOUs with supervisory authorities in Japan and Hong Kong; also with authorities in United States, Canada, Germany, South Korea, China, Laos, Malaysia, Cambodia, Brunei, and Myanmar for various supervisory purposes. - OIC is not currently a signatory to the IAIS MMOU but intends to sign in the near future. - OIC participates in ASEAN Insurance Regulators’ Meeting & ASEAN Insurance Council Meeting and is active in AITRI; planned to host the next AITRI meeting in April 2019 on microinsurance. - Crisis-management posture and experience: - OIC relies on legal entity supervision and ring-fencing of funds to protect local policyholders; as an involved supervisor it engages with group-wide supervisors on crisis planning and information exchange. - OIC has power to request insurers to send any plans or documents under Section 48 of the LIA and Section 51 of the NLIA. - Two GSIIs identified by IAIS/FSB have Thai operations that are small; OIC does not participate in their CMGs. - OIC’s crisis focus has been on domestic risks: low interest rates (life) and catastrophes (non-life). - Case study — 2011 Flood in Thailand (actions taken by OIC): - Met insurers to assess financial stability, liquidity, and claim management including reinsurance agreements; some companies required immediate capital injections. - Required non-life insurers to prepare cash flow projections and report every two weeks. - Special inspections to ensure reinsurers’ ability to pay claims; OIC staff traveled to meet three key reinsurers in Japan and major reinsurers in Europe to discuss claim payments. - Encouraged foreign investors to inject capital via Notification on increasing foreign shareholders in insurance companies. - Required insurers to maintain contingency plans and procedures. - Stress testing was performed and updated in 2014; by 2014 most companies had adjusted risk management and showed less adverse stress-test impact than in 2011. *Source: 1thaea2019005 - Section 43 of the NLIA provides that a responsible investigating officer under the (PDF).* ### 2018. Results? ### 2018. Results? ### 2008–2009 Financial Crisis - 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. ### Assessment - Assessment: Partly observed - Comments: Partly observed is based on the following observations: - 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: - 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. ### Recommendations - It is therefore recommended that the OIC: - Develop criteria to identify groups operating in Thailand on a cross-border basis for which the OIC should require a contingency plan to protect Thailand policyholders, both on a gone and going concern basis. - Amend notifications to address, at a minimum, all the information required to be shared by the principle statements of ICP 26. ### 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. *Source: 1thaea2019005 - 2018. Results?* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1thaea2019005.pdf_