Thailand: New Investment Rules for Insurers

Risk-based investment governance

Insurance companies' abilities to invest in certain asset classes or operate other businesses will be subject to a "Risk Proportionality" screening framework, which categorizes companies into three groups, based on financial performance indicators and internal risk management tools, including early warning systems, self-assessment questionnaires, and risk control matrices:

i. Insurers passing special screening.
ii. Insurers passing standard screening.
iii. Insurers failing the screening.

Insurers who pass special screening or standard screening will be able to invest in newer assets, while those who fail the screening will not be permitted to.

Permitted with the broadest investment abilities, insurers that pass the standard screening or special screening can invest in additional asset classes, such as hedge funds, private credit funds, and venture capital, subject to the specified limits and corporate approval conditions.

If a company has already made an investment but subsequently fails to meet special or standard screening criteria, it must divest or reduce its existing investment within a prescribed timeframe.

In addition, the Notification relaxes investment limits, including increased investment ceilings (product limits) for domestic and foreign equity investments for insurers passing the special screening.

Expanded investment asset classes

Under the repealed regulations, insurance companies in Thailand are generally permitted to invest only in a limited list of assets. However, under this new Notification, insurers will be permitted to invest in a broader range of assets, subject to the Risk Proportionality screening, such as:

• Lending through investment units, such as private credit funds
• Units of mutual funds, both domestic and international, such as private funds and Hedge Funds
• Investment Tokens
• Venture Capital (VC) entities, both domestic and international

Expanded roles of Board of Directors and Investment Committees

Board of Directors (BOD) of insurance companies will have much more active and accountable roles in overseeing investments. Essentially, the BOD now has the authority to approve nearly all types of company investments, including those considered high-risk, without needing approval from the OIC. This marks a major change from the previous system, where the OIC had the power to approve significant investments. Under the new Notification, the company simply needs to inform the OIC about investment developments that have been approved by the BOD.

The Investment Committee (IC) is also tasked with expanded responsibilities in operational oversight and reporting, reflected in a more active role of the BOD. Under the new Notification, the IC must report investment performance to the BOD at least quarterly and report within 30 days of any significant investment transaction. Under the new Notification, at least one-third of IC members must be BOD members while the previous regime only requires at least one IC member to be the BOD member or management of the company.

Less strict regulatory framework

Removal of pre-approval requirement and relaxation of investment limits

• Removal of pre-approval: The Notification introduces a significant shift from the current approval-based system to a notification regime. As mentioned above, the company's BOD is authorized to finalize investment decisions without the OIC's approval.
• More relaxed limits: The Notification relaxes investment limits, including increased investment ceilings (product limits) for domestic and foreign equity investments for insurers passing the special screening.
• Updates on loan requirements: Adjustments to loan-to-value ratios and guarantees, providing insurers with greater operational flexibility.