Hughes Krupica: A sign of economic liberalisation in Thailand?

The Thai insurance industry has seen significant excitement from foreign participants recently. On 18 January 2017, the Ministry of Finance (MOF) issued two notifications to the public to liberalise restrictions on the participation and ownership of foreign entities in Thai insurance companies, with immediate effect.

The notifications allow foreigners to directly hold more than 49 percent of the voting shares in a Thai insurance company. Additionally, foreign directors may comprise more than half of the directors of an insurance company's board.

Since its last shift in 2015, when the MOF increased the threshold for foreign participation in insurance companies from 25 percent to 49 percent, this latest shift is expected to further ensure the transparency of the insurance system in Thailand and strengthen the stability of the insurance company and the overall business sector.

However, in order for a Thai insurance company to meet the conditions, the Office of Insurance Commission (OIC) must be satisfied that it has

i. sufficient Capital Adequacy Ratio meeting the OIC specification and

ii. a business plan that improves the efficiency and stability for insurance companies or the overall insurance industry.

Another factor that will be considered is the financially strong foreign contender, who exhibits at least 10 years of experience and expertise in the insurance business, thus having the ability to provide significant financial support to the Thai insurance company.

Nonetheless, an insurance company wishing to go this route should consider, well in advance, its total capital available (TCA). Non-life insurance companies must maintain no less than one billion THB and life insurance companies no less than four billion THB - still a significant barrier to entry.

The increased shareholding threshold for foreign shareholders marks a step that aids foreign participation and the Thai insurance industry as a whole. Being able to legally have majority voting shares, will naturally translate to improved control and management for the foreign investor.

Allowing a direct majority foreign shareholding may also curtail the practice of using holding companies, or looking for alternative ways to 'effectively' acquire more than 49 percent shareholding. This may align with the MOF's objective to prevent and defuse any form of establishment of nominees, thereby further increasing the transparency of the insurance system.

The 2017 revision represents a step forward for the Thai insurance industry, whilst at the same time opening its economy to foreign investment. If it proves beneficial for both foreign participants and Thai insurance companies in the long run, we may be able to witness the increase of voting shares for foreign participants in other business sectors in Thailand.

So, the real question is whether this liberalisation is an isolated case, or the beginning of a new trend that may be extended to other industries?

By Ms. Sirikwan Tan, (Associate) of Hughes Krupica.

Hughes Krupica is a law firm which specialises in Real Estate Construction Hospitality Corporate Commercial Personal Injury Dispute Resolution and Litigation, operating in Bangkok and Phuket, servicing clients in relation to their business activities in Thailand and in other regions of Asia.

www.hugheskrupica.com