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Key changes to foreign shareholding structure of Thai insurers

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Source: Asia Insurance Review | Jun 2015

 By Ms Sarah Chen, Of Counsel, Norton Rose Fulbright Thailand
On March 6, 2015, the third amendment acts (Amendments) to the Life Insurance Act B.E. 2535 (1992) and the Non-life Insurance Act B.E. 2535 (1992) (Insurance Acts) came into force. 
   The Amendments contain, among other things, the following three changes to the shareholding structure of Thai life and non-life insurance companies (each an “Insurer”): (i) the maximum foreign shareholding is increased to 25%; (ii) two additional grounds have been introduced for the Minister of Finance (MoF) to allow more than 49% foreign shareholdings; and (iii) the reference to “voting rights” when determining whether a corporate shareholder is Thai for the purposes of the Insurance Acts (as amended) has been removed. 
   According to the notes to the Amendments, these changes are intended to make the legal requirements “more appropriate” for the current business operations of insurance companies.
   In parallel to the various amendment acts, the Office of Insurance Commission (OIC) has also been working on a complete overhaul of the Insurance Acts. There is currently no published timeline for this.
25% foreign shareholding threshold
The Amendments increased the maximum permitted foreign shareholding in an Insurer, without any specific regulatory approval, from 25% less one share to 25% of its total issued shares. Investors should note that shareholdings equal to 25% less one share or 25% enjoy the same minority protection rights under general Thai corporate law. 
Foreign shareholding above 25%
The OIC has always had the discretion to permit aggregate foreign shareholding of up to 49% (OIC Waiver). This remains unchanged. We understand, from verbal discussions with the OIC, that the OIC is in the process of formulating the specific requirements/criteria which will be considered when assessing an application for an OIC Waiver. 
   The MoF (at the recommendation of the OIC) has always had the discretion to permit aggregate foreign shareholdings in excess of 49% (MoF Waiver) in the event the status or operations of the Insurer might cause damage to the insured or the public. The Amendments introduced two additional grounds upon which the MoF can grant a MoF Waiver, namely:
to enhance the Insurer’s operations; or
to enhance the insurance sector. 
As at the date of this article, neither the OIC nor the MoF has issued any guidance as to the specific requirements/criteria which will be considered when assessing an application for a MoF Waiver. However, the Amendments contemplate both the OIC and the MoF prescribing the criteria, procedure and conditions in respect of the OIC Waiver and the MoF Waiver. 
   The Amendments also require the publication in the Royal Gazette of any MoF Waiver or any OIC Waiver granted, together with the reasons and conditions (if any). This should introduce much desired transparency to the waiver application process and provide useful guidance for foreign investors.
Removal of “voting rights”
The Amendments removed the definition of a “Thai national”, under which a Thai incorporated company with more than 50% of its “voting rights” held by Thais was treated as a Thai corporate shareholder. Based on verbal discussions with OIC, without a specific definition of a “Thai national” in the Insurance Acts (as amended), the OIC will apply the Foreign Business Act B.E. 2542 (1999), which defines a “foreigner” (and by default a “Thai”) by reference to a majority of the “shares” (not “voting rights”) held.


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