Build public trust and access to insurance system.

Build stability and competitiveness.

Develop protection of insurance-related benefits for the public.

Develop insurance infrastructure.

Prescribe the regulations, procedures, conditions, and guidelines for the undertaking of insurance business to be consistent with international standards.

Prescribe regulations, procedures, conditions, and guidelines for regulating, promoting, and developing the undertaking of insurance business.

Provide guiding recommendations to support consideration by the Minister or the Cabinet, in relation to the issuance or revocation of licenses, the issuance of Ministerial Regulations and Ministerial notifications under the law on non-life insurance, law on life insurance, and law on the protection for motor vehicle accident victims, and other matters as assigned by the Minister.

Announce, with the approval of the minister, the industry rate of contribution for the operation of the commission to be collected.

Prescribe the regulations and procedures for approving the determination of the insurance premium rates.

Consider appeals of administrative orders of the Secretary-General.

Lay down plans, strategies, and administrative guidelines of the Office.

Issue regulations on the organization, finance, personnel administration, general administration, procurement, internal audit, including aids and welfare of the Office.

Approve the operating plan, expenditure plan, and annual expenditure budget of the Office.

Control the administration and operations of the Office to be consistent with the Act.

Perform any other acts and duties as prescribed by law to be under the authority and responsibility of the Commission.

The power to approve licensing decisions.

Authority to waive foreign shareholder and foreign director requirements.

Authority to amalgamate.

The power to revoke a license.

The power to take control of a life insurance company.

The power to approve OIC Board recommended contribution rates.

The power to increase the limit of life insurance and non-life insurance Policyholder protection fund payouts to the policyholders.

Is operationally independent, accountable and transparent.

Protects confidential information.

Has appropriate legal protection.

Has adequate resources.

Meets high professional standards.

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 servic 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.

“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.”

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 this person has 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 this person has vacated office for not less than one year.

A person who has been 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.

Retirement.

Death.

Resignation.

Failure to meet ongoing competency or suitability requirements described under section 7.

Removal by the Cabinet due to inadequate or dishonest performance of duties, misconduct, or lack of ability.

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.

“Unless otherwise authorized by the law or permitted by the Office, a staff member shall keep confidential the secrets and information on the business of the Office obtained in the course of his or her performance and take precautions to prevent any such confidential document or information from falling into the hands of other persons, which may lead to damage to the state or the Office, pursuant to the rules of the Office concerning security with respect to classified information of the Office and other relevant rules, regulations, or notifications, unless otherwise authorized by law or permitted by the office.”

“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.”

Repealing or revising Section 45 of the ICA to ensure that the OIC is independent in the administration of its supervisory duties and that its decisions cannot be suspended without appropriate administrative process (e.g., appeal to the court system).

Requiring all commission appointments to be based on the qualification of candidates rather than their positions in other government organizations. Board members appointed on the basis of their positions in other government organizations could face conflict of interest issues between their regular position responsibilities and their responsibilities to the commission.

Giving the OIC, rather than the Minister, the authority to set fee (or contribution) levels on industry. While the OIC appears to be adequately resourced at present, vesting authority for fees outside the OIC creates a risk that restrictions on resources could be used inhibit the operational independence of the supervisory organization.

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.

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, to ensure a stable financial status and sufficient capital to expand the business in the future.

A cash deposit or bank guarantee: 5 percent of the registered capital must be provided.

Business and financial plans: the application must provide 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.

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.

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.

Under Sections 83/3 and 83/4 of the LIA and Sections 78/3 and 78/4 of the NLIA, Actuaries must:

• o Have graduated in actuarial sciences,

• o Be mentally competent,

• o Be a fellow of an actuarial association recognized by the OIC,

• o Have an actuarial license which is not currently suspended and has not been revoked in the last five years,

• o Comply with the Code of Conduct and Standards of Actuarial Practice prescribed by the OIC.

Under Section 43 of the LIA and Section 47 of the NLIA, Auditors shall be a certified auditor under the law on accounting professions. They must also 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 (a head of risk management unit and a 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.

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).

The insurance legislation does not include an appropriate definition of control.

The insurance legislation does not include general provisions requiring ongoing approval of all changes in control, other than those with respect to foreign shareholders.

All insurance companies must have a written corporate governance framework, which is 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.

Insurance companies must determine the corporate structure, composition, and the appropriate number of directors for their boards with consideration for the nature, size, and complexity of the company; proper checks and balances; the directors’ ability to work together; and compliance with life insurance, non-life insurance and public limited company laws.

The board of directors must possess sufficient knowledge, abilities, experience; understanding of personal qualifications, duties, and responsibilities; as well as have a range of experience or skills that suit the nature, size, complexity, and risk of the companies.

The company’s board of directors must consist of:

• o Executive directors (not exceeding one-third of all directors).

• o Independent directors (not exceeding one-fourth of all directors).

The chair of the board of directors must be either an independent director or nonexecutive director, unless an exemption is granted by the OIC on a case-by-case basis.

Independent directors must meet prescribed qualifications established in in the Notification.

The Board, In addition its more general responsibilities must:

• o Approve strategies and policies on business operations, conflict of interest, whistleblowing, compensation, and code of ethics and business conduct.

• o Ensure that efficient mechanisms are put in place to monitor and inspect internal functions, risk management and internal control, subcommittees’ appointments, company’s audit, carryout annual board of directors’ performance evaluation, public disclosure, and financial reporting obligations.

• o Continuously monitor the company’s operations.

Directors, in addition to their more general responsibilities, must:

• o Comply with insurance related laws.

• o Act in the best interest of the company and the insured, with honesty and prudence. o Attend meetings regularly and give independent opinions, with respect to their fiduciary duties.

Executive managers are to adopt and implement the strategies and policies issued by the board of directors. In addition, they are also required to:

• o Have regard for the sustainability of the company’s business operations;

• o Promote the implementation of risk management and internal control systems, and fair treatment of the insureds.

• o Ensure timely reports to the board of directors so that their performance may be monitored and evaluated.

• o Ensure that there is an appropriate chain of command, as well as risk management, regulation, control, and inspection for each business area.

• o Communicate the board of directors’ policies on risk management to other personnel.

• o Perform annual assessment of staff.

• o Act within the scope of their duties, unless the board of directors has considered that any out-of-scope performances would not affect their other duties.

Audit Committee: comprised of at least three persons, two-thirds of whom must be independent directors, the Audit Committee oversees financial reporting and internal and external audit activities and makes reports and recommendations to the Board.

Risk Management Committee (RMC): comprised of at least five persons, the RMC is responsible for supporting the Board on risk management and helping to identify and mitigate their risks.

Investment Committee: comprised of at least 3 persons, the Investment Committee is responsible for establishing the investment policy and investment plan of the insurer and overseeing the investment activities of the company.

Appointment and revocation of the independent auditor including remuneration of the auditor.

Preparation of reports consistent with legal requirements and accounting standards.

At least once a year, meetings between the Board of Directors, or the Audit Committee and the auditor without executive attendance.

Identify risks and sources of risks that have a financial and non-financial impact on the insurer and require a review of these risks at least annually or when risk factors have changed.

Implement a methodology for risk assessment and risk prioritisation.

Respond to risk in accordance with the insurer’s policies.

Control risks and monitor evaluation.

Report on risk management and risk status.

The company’s policy for managing the risks it faces.

Linkages to the risk management system, the corporate governance, and the corporate culture.

Clear relationships between pricing, product development, underwriting, and investment.

Risk reporting guidelines and the responsibilities of those involved in the risk management process.

Stress testing frequency and content.

Risk tolerance limits for each risk that are consistent with the company’s risk appetite.

Linkages between risk tolerance, regulatory capital, economic capital (if applicable), and risk monitoring process.

Risk management.

Product design and development.

Pricing.

Underwriting.

Investment.

Claims management.

Reinsurance.

Outsourcing.

Capital management.

Asset-liability management.

Providing recommendations and advice in relation to compliance with laws, preparing a written manual on compliance with laws, and providing training to employees on a regular basis.

Developing a risk management system with respect to compliance with laws by identifying the risks, assessing the risks, determining risk managing methods, monitoring the risks, and reporting the result of the assessment of the changes in compliance risks, specifying the cause for non-compliance with laws and the guidelines on rectification including the problems which have been rectified, and submit such report to the management, the audit committee, or the board of directors.

Coordinating with relevant units to prepare and implement the compliance risk management plan on a yearly basis and specifying the timeframe and the unit responsibilities, including rectification of problems which may prevent compliance with laws.

Helping ensure compliance with laws and reporting on compliance annually to the board of directors or the audit committee.

Coordinating with the OIC on behalf of the company and performing specific duties such as tasks with respect to prevention and suppression of money laundering and combating the financing of terrorism. In addition, the head of compliance is be appointed as a working point of contact with the OIC.

Reviewing and reporting the accuracy and completion of accounting records in accordance with the financial and accounting policies.

Conducting audit activity in order to ensure that the company’s internal control system is sufficient and efficient to manage and maintain risks to be at a controllable level and in compliance with the good corporate governance process.

Auditing the performance of work of the internal units of the company to ensure their compliance with the law governing non-life insurance, requirements of the Office and other laws in relation to the company’s business.

Examining the efficiency and effectiveness of the risk management system based on the consolidated risk management framework and policy approved by the board of directors.

Assessing the method for safeguarding the assets of the company and the insured and examining the existence of assets.

Investigating fraud, errors, omissions, and other irregularities.

Assessing the information system to ensure that it has sufficient internal control, and is efficient and comprehensive for all activities that use computers, including having a data backup system to accommodate the business continuity management.

Assessing the reliability of the system of reporting to supervisors according to their hierarchy, confidentiality in the event that an employee reports a violation of rules and regulations, provision of protection from retaliatory actions, and monitoring of results as appropriate.

Preparing a report of the result of the assessment of the company’s internal control that specifies material items found upon inspection, including recommendations and rectification of deficiency and submitting the report to the audit committee or the board of directors.

Controlling and maintaining reports of audit results and working papers including keeping documents and evidence used in support of the audit.

The insurer’s insurance liabilities, including policy provisions and aggregate claim liabilities, as well as determination of reserves for financial risks.

Asset-liability management with regards to the adequacy and the sufficiency of assets and future revenues to cover the insurer’s obligations to policyholders and capital requirements, as well as other obligations or activities.

The insurer’s investment policies in relation to required return to support benefit payment of existing and new insurance products and the insurer’s valuation of assets which it is applicable to small insurers.

An insurer’s solvency position, including a calculation of minimum capital required for regulatory purposes and liability and loss provisions.

An insurer’s prospective solvency position by conducting capital adequacy assessments and stress tests under various scenarios, and measuring their relative impact on assets, liabilities, and actual and future capital levels.

Risk assessment and management policies and controls relevant to actuarial matters or the financial condition of the insurer.

The fair treatment of policyholders with regard to distribution of profits awarded to participating policyholders.

The adequacy and soundness of underwriting policies.

The development, pricing and assessment of the adequacy of reinsurance arrangements.

Product development and design along with estimation of the capital required to underwrite the product.

The sufficiency, accuracy and quality of data, the methods and the assumptions used in the calculation of technical provisions.

The research, development, validation and use of internal models for internal actuarial or financial projections, or for solvency purposes as in ORSA.

Other works related to actuarial and financial matters as assigned by the Board of Directors.

Reporting on investments in other businesses.

Actuarial report.

Reinsurance report.

A-level analysis includes an 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. The analysis is tied to major risks of the insurance company including Strategic Risk, Credit risk Market risk, Liquidity risk, Operational risk, and COB.

B-level analysis provides a more in-depth analysis of issues or concerns identified by A-level analysis that affect the company’s financial position, using additional financial ratios and trend analysis. B-level analysis includes analysis of major activities including underwriting, pricing, claims management, asset and liability management, reinsurance, and investment.

Offsite assessment of the insurer.

The insurers 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.

Documenting and publishing a high-level supervisory framework document that describes the basic principles, high level concepts, and core processes that it uses to guide its supervision of insurers.

Developing some more specific guidance to help staff and industry in emerging operational risk areas (e.g., cyber risk). This may help to increase transparency, and consistency of supervision in these areas.

Augmenting supervision of COB requirements for insurers and intermediaries to include fuller examination of policies, procedures, and practices of insurers and intermediaries once new requirements are assimilated (OIC staff are aware of this matter and plans to address it due course). In due course, the introduction of more thematic examinations should also be considered.

Enhancing the insurer’s controls, policies and procedures in specific areas.

Enhancing or changing their board or governance structure.

Reviewing a particular part of their business and remediating any issues found.

Sections 52 of the NLIA and Section and 53 of the LIA which give the Registrar, with the approval of the Commission, authority to order an insurer to improve its conditions or operations within a timeframe specified by the registrar. This power can also be used to require insurers to increase capital.

Section 53 of the NLIA and Section 54 of the LIA which empower the Commission to order an insurer to remove directors or persons responsible for its operation.

Section 55 of the LIA allows the Registrar (OIC) to request the Minister to issue an order taking control of the company.

Section 59 of the NLIA and Section 64 of the LIA allow the Minister to revoke the insurers license.

Level 1: the insurers must have CAR not less than 180 percent. All EWS ratios are within acceptable ranges and do not affect the adequacy of capital and operations of the company, and the net risk, which is determined by regular examination, of the company is regarded as being low.

Intervention in these companies includes regular monitoring such as regular offsite monitoring of financial status and operations, interviewing the insurer’s executive at least once a year, and onsite examination (at least every 5 years).

Level 2: the companies have CAR more than 140percent but less than 180percent, some EWS Ratio may be outside acceptable ranges of standard, which may affect the adequacy of Capital in 1–3 years, and the net risk of the company is low to medium.

In addition to the intervention described in level 1, intervention at this level may include the company submitting a Management Discussion and Analysis Report describing the causes of the problems and trends of issues that could affect the capital position, formally notifying the company of supervisory concerns and asking for corrective action to be taken. These companies will be examined every three years and the OIC will monitor the corrective action taken on issues.

Level 3: CAR is more than 100percent but less than 140percent, some EWS Ratios may be outside of acceptable range which may affect the adequacy of Capital funds in less than one year, and the net risk, which is determined by regular examination, of the company is medium to high. In addition, financial reports may lack reliability.

In addition to actions taken at Level 2, intervention at this level may include adding the company to a formal “Watch list.” The company will be required to submit a full report on a monthly basis on maintaining required solvency, the company’s corrective measures and reporting systems are more closely examined and scrutinized, the company’s capital plan for the next three years and stress testing results are reported and examined. In addition, the company is required to submit a plan to amend its financial status and operations, which identify the steps and timeframe for correction. These issues will be shared with other departments in OIC in order to acknowledge them before making any approval.

For certain issues, OIC may consider ordering the company to hire a special audit and/or invite the auditor/independent directors of the company to discuss, supervise and resolve these problems. These companies will be examined every year and the OIC will closely monitor the corrective action taken.

Level 4: The Company will have a CAR lower than 100percent or appears to be operating in a manner, which may be harmful to customers or is unsustainable in the long run. Net risk is determined to be high to very high.

In addition to the actions taken at level 3, the OIC may order the directors of the company to become familiar prepare for the legal processes associated with involuntary wind-up of the company, the company will be prohibited from expanding its business if capital is lower than required. The OIC may order the company to take corrective action. The OIC may order the company to increase capital, The OIC may order the company to remove directors or specific personnel. The OIC may consider taking control of the company. The OIC may consider revocation of the insurers license.

Section 53 of the NLIA and Section 54 of the LIA allow the Registrar, with the approval of the Commission, to order an insurer to improve its condition or operations within a timeframe established by the registrar. These sections also provide authority for the OIC to order insurers to increase capital.

Section 52 of the NLIA also allows the Registrar, with the approval of the Commission to temporarily suspend the underwriting of non-life insurance (section 54 of the NLIA provides that in case of a temporary suspension of the underwriting, its directors, officers, or employees must not make any payments, or remove or dispose of the company’s assets, except for payment of salaries or wages to the company’s officers or employees as normal).

Section 53 of the LIA and Section 52 of the NLIA allow the OIC to order an insurer to remove officers or directors if the insurer is being operated in a manner that could damage the interests of policyholders or beneficiaries.

Sections 84 to 112/2 of the NLIA and Sections 89 to 117/2 of the LIA establish penalty provisions for various contraventions of the NLIA and the LIA. The penalties include fines, and for some contraventions, terms of imprisonment.

Section 110 of the NLIA and section 116 of the LIA allow the OIC to seize property of an insurer in certain circumstances.

Pursuant to clause 24 of Insurance Commission Notification on Investment of Insurance company, OIC can suspend the investments of an insurer if the insurer’s investments are not in accordance with the investment policy framework and the investment manual or are inconsistent with the capability of the operational systems and personnel, or financial position of the company.

Clause 7 of Registrar Notification on Report on Capital Fund, the OIC for a reasonable cause can order an insurer to procure another certified public accountant and/or actuary acceptable to the Registrar to review or audit the insurer at the insurer’s expense, or order an insurer to revise the capital fund maintenance report. If the company fails to make a revision as instructed by the Registrar, it shall be deemed that the company did not submit the report. In addition, according to Sections 27/5 of the LIA and Non-Life Insurance Act 1992, the company shall not be allowed to expand its business while executing the scheme to restore its financial position.

Section 111/2 of the NLIA and section 117/2 of the LIA allows the OIC to publish information on contravention of the acts, regulations or notifications.

The OIC has the authority to enforce corrective actions by using the administrative orders under section 53 of the LIA and under Section 54 of the NLIA. The OIC has the power to remove board members or persons responsible for the operation of any company.

Section 108 of the NLIA and Section 114 of the LIA provides for criminal sanctions upon directors if certain offences have taken place.

The power to take control of non-life insurers be added to the OICs legislative powers. The ability for the supervisor to take control is an important tool needed to minimize losses when an insurer is headed towards insolvency and becomes more important in a market as the size of non-life insurers grows.

The OIC proceed to implement proposed legislation to increase the supervisor’s powers over intermediaries including the power to suspend intermediary licences, and issue administrative orders.

Consideration might also be given to adding powers to require insurers or intermediaries to make restitution for harm caused to customers by contraventions of regulatory requirements.

Thailand has one domestic life reinsurer (Thai Re Life) and one domestic non-life reinsurer (Thai Re). There are no requirements for minimum cessions to domestic reinsurers, nor is there a state-owned reinsurer in Thailand.

Domestic insurers also cede risks to foreign reinsurers, usually through brokers based in Hong Kong or Singapore. No foreign reinsurers are currently licensed in Thailand, however the government has a business development initiative underway that might change that prospectively, as discussed at the end of this section.

Cessions to foreign reinsurers may be limited depending on the reinsurer’s rating from a recognized rating agency. Using Standard & Poors’ ratings by way of example, cessions to reinsurers rated A- or higher are not limited; cessions to reinsurers rated BBB- to BBB+ are limited to 50 percent of foreign reinsurance premiums; and cessions to reinsurers rated below BBB- or to reinsurers, which are non-rated are prohibited.

While there are no corresponding provisions in the 2018 reinsurance notifications that pertain to cessions to domestic reinsurers, the notifications on RBC provide incentives for insurers to cede to stronger reinsurers, be they foreign or domestic, based on credit ratings for the former, and CAR for the latter. For example, A CAR of 300 percent is deemed to be equivalent to a credit rating of AAA, whereas a CAR of 150 percent is deemed to be a rating of BBB. Currently there is only one domestic life reinsurer, and only one domestic non-life reinsurer.

Insurers are not allowed to enter into financial or finite reinsurance contracts or where there is no significant risk transfer to the reinsurer, e.g., at least a 10 percent probability of a 10 percent loss to the reinsurer.

Insurers must also consider levels of risk concentration and diversification with respect to any reinsurer or group of reinsurers and comply with limits specified in the notification.

Risk transfer to capital markets is not permitted, nor may insurance be an underlying asset for securitization. Special purpose entities are not permitted.

Have procedures to monitor the financial stability and appropriateness of reinsurers, e.g., of reinsurers’ credit ratings, financial position, capital adequacy, and ability to fulfill obligations.

Have procedures and controls relating to transactions and balances with reinsurers.

Establish guidance for the selection of reinsurance brokers, taking into account the broker’s experience, expertise and quality of services, as well as the reinsurer’s home supervisory regime.

Names of the executives having duties and responsibilities to supervise compliance with the reinsurance management framework and others involved in reinsurance-related activities.

Their reinsurance strategy.

Results of the prior year’s operating results, both for treaty and facultative reinsurance, along with a narrative analysis.

An assessment of the effectiveness of the prior year’s reinsurance program.

An assessment of the appropriateness of the current year’s reinsurance program and whether it is aligned with the company’s business, risk appetite and capital management goals, along with supporting rationales.

Risk management and internal control approaches with respect to the reinsurance program.

Summaries of outward and inward reinsurance treaties.

Summaries of the amounts of outward reinsurance premium and the corresponding reinsurer’s credit ratings (for foreign reinsurers) or CAR (for licensed reinsurers).

Summaries of the details of new reinsurance treaty contracts, both outward and inward reinsurance treaties, within two months after the effective date.

Studying the company profile and business where reinsurance activities are significant.

Calculating retention and ceding ratios, both overall and for each type of business.

Reviewing the risk profiles of reinsurers (inward and outward).

Reviewing reinsurance accounting transactions and balances.

Reviewing and analyzing the trends and movements for significant reinsurance-related transactions.

Reviewing any significant amounts of reinsurance credit risk capital charges of individual reinsurers and the reinsurance concentration risk capital charge of individual reinsurers.

Reviewing onsite inspection reports on reinsurance activities.

Obtaining and reviewing the reinsurance strategy and related documents, such as business plans, financial statements, and RBC reports from the OIC’s internal database, and discussing with the company’s reinsurance department.

Discussing with the reinsurance department the company’s reinsurance processes and systems, including with respect to reinsurer selection.

Reviewing the reinsurance programs and contracts for compatibility with the submitted reinsurance strategy, proportion ceded, and the reinsurer’s credit rating.

Reviewing the reinsurance manual, reinsurance program and a sample of reinsurance contracts.

Identifying risks and controls over the reinsurance processes and programs and testing ensure that the reinsurance transactions comply with the reinsurance manual and programs, and testing the allocation of reinsurer’s share of premium and losses in the company’s systems.

Collection of information to identify slow-payment of amounts due on a reinsurer-by-reinsurer basis to assess counterparty risk exposure and liquidity issues.

Development of criteria to require domestic insurers ceding material amounts of risk to foreign reinsurers to perform ongoing credit risk assessments of the assuming reinsurers as part of ERM, and not rely solely on credit ratings of reinsurers.

Development of additional guidance for ceding insurers to use in selecting reinsurers, e.g., in respect of the current requirement that they consider the supervisory regime of assuming reinsurers.

In advance of any actual need, whether and how the legal framework might be strengthened to improve the security of reinsurance recoverables owed to an insolvent domestic insurer from a foreign reinsurer with no domestic presence.

Reliability and objectivity of valuations: The OIC indicates that a Thai government bond offers maturities up to 50 years and is available and actively traded on exchanges (http://www.thaibma.or.th/EN/Market/YieldCurve/Zero.aspx). For discounting purposes, the point on the yield curve at maturity is held at that level as a long-term forward rate. Despite the availability of assets with such a long maturity, there is some inability of Thai life insurers to match assets and liabilities as indicated by duration gap data reported by life insurers and which are monitored by the OIC.

Recognition of insurance contracts: This is based on TFRS; although advanced premium is not required as a part of the technical provision, in practice, it can be recognized either in other liabilities or as a premium liability reserve relating to the insurance contract.

Consistency across insurers and time: The Notification on Asset and Liability Valuation (2011) and Notification of the Registrar on Standard of Actuarial Practice Regarding Reserve Valuation require insurers to value assets and liabilities in a consistent manner for solvency purposes.

Decision usefulness: The regulations pertaining to the valuation matters have been designed and deemed appropriate by the OIC for the nature, scale, and complexity of the Thai insurance market.

Transparency: Thai insurers are subject to public disclosure and confidential reporting to the supervisor (see section herein on ICP 20).

Own credit standing: The OIC has produced Notifications regarding regulatory adjustments to the valuation of liabilities, none of which suggest, imply or require that the insurer’s own credit standing be reflected in the valuation of liabilities. That said, the notifications do not specifically proscribe use of own credit standing, however the OIC asserts that it would not permit such a practice.

The NLIA, Section 23, requires insurers to hold a premium liability based on the greater of (i) an unearned premium reserve representing the amount of premium allocated to the unexpired portion of the contract, and (ii) an unexpired risk reserve, where the unexpired risk reserve plus PAD is calibrated at the 75^th percentile (in essence, at an amount equal to the UPR plus a premium deficiency reserve, if applicable).

The Claim liability has 3 components including a case reserve, unallocated loss adjustment expense (ULAE) reserve, and an incurred but not reported reserve. Case reserve is the aggregate outstanding amount of reported claims including allocated loss adjustment expenses (ALAE) which have not yet been closed. In case of large reported claims, the case reserve is set by the insurer’s claim adjustors. ULAE is determined using actuarial methods and considers the expense experience of the respective insurer. The incurred but not reported reserve is actuarially determined using the individual insurer’s reported and paid losses and ALAE. Methods typically used include the Chain ladder and Bornhuetter-Ferguson methods. The selection of the loss data and methodology are based on actuarial judgement and non-systemic changes such as fluctuation of reported losses in different accident years.

“The company’s board of directors must focus on establishing investment and other business policies, enterprise risk management policy and risk management processes that are appropriate for the company’s capability, and must monitor and control the company’s investment and other business operations to ensure that they are consistent with the company’s stability, financial position and operation, as well as good governance and risk management principles.

The company shall manage its assets in accordance with the nature of its business operation and non-life insurance products, and in a manner that is appropriate for its obligations to the insured persons, in terms of cash flow, amount of funds, duration and currency.

With respect to its investment and other business operations, the company shall consider the capability of operation systems and staff expertise, taking into account the security, liquidity and risk diversifications, as well as types of risk, such as market risk, credit risk, liquidity risk and operational risk, concentration risk, or strategic risk.”

Establish an ERM policy to cover risk identification, risk appetite, risk assessment and prioritization, the method to managing risks, the monitoring and risk management processes covering all relevant and material risks and the company’s core activities, and a supporting risk management structure.

Prepare a three-year summary plan of business direction, the company’s growth rate, and the plan to support that expansion, and to annually submit that to the OIC along with the ERM policy.

Have a more holistic approach to ERM with a focus on a company-wide risk management culture, and to encompass processes “of planning; organizing; and controlling enterprise risks to mitigate fluctuations that may affect business operations within the risk appetite, taking into consideration the size; nature; and complexity of the company’s operations, as well as the fulfillment of the company’s objectives and targets over the short and long term….”

Prepare its risk management framework in writing, and be approved by the Board of Directors

Enhance the role and responsibility of the Board of Directors with respect to ERM through prescribed risk management-focused responsibilities.

Appoint a RMC and to have a risk management unit in place to enhance the risk governance framework.

Have its internal audit unit monitor and assess the risk management of business units to be consistent with its risk management framework and risk management policy, and report results to the audit committee or board of directors at least annually.

ERM and ORSA processes which cover all relevant and material risks.

Clear linkage between risk management policy, business strategy and capital plan.

Feedback loop to enhance the effectiveness of ERM/ORSA.

Three lines of defense and the role & responsibilities of key control functions; including risk management, actuarial, compliance, and internal audit; and key written policies in terms of risk management for main activities.

“Three lines of defense:” An OIC-prescribed approach for insurers to establish a risk governance framework to define the different layers of risk control, starting with (i) risk taking business units taking responsibility for identifying and managing risks directly through the design and operation of controls, overlaid by (ii) risk and compliance functions responsible for ongoing monitoring of the design and operation of those controls, providing advice and facilitating risk management activities, followed by (iii) the Internal Audit function which is responsible for independent assurance over management of risks.

Risk management framework: Must cover (i) quantifiable and non-quantifiable risks, such as underwriting, market, credit, operational, liquidity, group, and emerging risks, at minimum, (ii) include an actuarial function to evaluate and provide advice to insurers on ERM/ORSA matters, (iii) have a feedback loop in the ORSA process, and (iv) provide linkage among risk, business strategy and capital. It must also provide for the identification, assessment and prioritization of risk events and sources of risks through a process which is reviewed and updated when there is a significant change that arises to the company’s risks, but no less than annually;

Risk appetite: Insurers must maintain risk levels within its risk appetite through related controls and monitoring processes, and with reporting on the status of material risks by risk categories to the Board of Directors (summary of risk status to be reported quarterly, and risk management and audit reports annually), with reports made available to the OIC upon its request.

Prospective view: The insurer must assess its ability to continue in business and the resources required to do so under a range of plausible adverse scenarios, over a time horizon needed for effective business planning.

Risk management policy: Insurers must include details of risk assessment arising from the business plan and responsive actions to manage the its most significant risks; be consistent with the insurer’s risk management framework; consider the relationship between the insurer’s tolerance limits, regulatory capital requirements, economic capital and the processes for monitoring risks including how potential business risks could result in capital needs; and provide for plans to meet those needs. The risk management policy must consider and be aligned with other key company policies, including:

• o Underlying functional policies: Required for the management of material and relevant risks arising from key activities including with respect to new product design and premium pricing, premium collection and product offering, underwriting, reserve valuation, claim management and benefit payment, reinsurance, investment, asset and liability valuation, and, if applicable, outsourcing.

• o Investment policy: Must address the objectives of ALM, e.g., duration and cash flow matching of assets and liabilities. Insurers must embed solvency risk management objectives into their ALM process, and consider solvency factors in ALM policy and decision-making, and ensure that the interaction between assets and liabilities is in line with the company’s risk appetite. Insurers must be able to assess, manage, control, and monitor the risks arising from investment activities such as market risk, credit risk, liquidity risk, operational risk, concentration risk, or strategic risk. Derivatives can be used for hedging purpose only and must be consistent with a written policy for their use and subject to certain prescribed requirements, e.g., for over-the-counter derivative transactions any counterparty must be an investment-grade domestic bank.

• o Underwriting policy: Must address underwriting risks and be approved by the Board of Directors. The actuarial function must provide advice to the insurer on the adequacy and soundness of underwriting policy and be involved in product development and design and the estimation of the capital required to support products underwritten.

ORSA: Insurers must conduct an ORSA at least annually, to assess its risk management, ensure financial solvency stability within the company and to reduce effects from business volatility to acceptable levels of risk. The written report must be approved by the Board of Directors and be submitted to the OIC. The ORSA must assess the insurer’s current and projected future solvency position, using an appropriate time horizon consistent with its business planning process. The Guidance note on ERM/ORSA as a complement of the Notification also requires insurers to assess their ORSA and ERM frameworks and document the rationale, calculations and action plans arising from this assessment, performing testing against experience, e.g., by comparing actual capital required during the year with that which was projected a year earlier.

Risk Register: A risk register must be maintained by insurers and updated at least annually to document all identified reasonably foreseeable and relevant material risks to the insurer and their cause. The Risk Register should document the risk, its source and type, the risk owner, key risk indicators, the current risk mitigation plan, and risk monitoring measures for the top ten risks that have the most effect on the insurer’s three-year business plan. Insurers must then implement risk assessment and prioritization, respond to the risks in accordance with the defined risk appetite, have control and monitoring procedures to evaluate the performance of risk management, and ensure that the insurer’s risks are within an acceptable level through controls or strategies for risk mitigation.

Economic Capital: The insurer should implement and calculate economic capital if it considers and foresees that the regulatory capital requirement does not reflect the risk profile of the company, or document that the regulatory capital requirements are adequate to support its decision to not perform economic capital calculations.

Stress tests: Insurers must annually perform stress tests with stress scenarios that consider the business plan, the major risks under its ERM/ORSA framework, the overall risk appetite of the company, and relationship between risk exposures and future changes in risk profile, with reporting thereon to the Chief Executive Officer for his/her approval, and to the Board of Directors. The stress tests must include at least base, self-select, macroeconomic, financial crisis, pandemic, and catastrophe scenarios; include reverse stress tests; and consider proposed management actions.

Capital planning process: Insurers must develop a capital planning process which is consistent with the time horizon of its business plan, including a capital contingency plan with stated thresholds to trigger actions to ensure maintenance of appropriate capital levels at all times and the specific, actionable, and realistic corrective actions that are triggered by each threshold. The corrective actions must consider adverse scenarios on the insurer’s activities (in contrast to normal operating conditions).

Fungibility of capital: For the solvency assessment, an insurer’s ERM framework must take into account the constraints of the Group in its assumptions, e.g., regarding the fungibility of capital across the group. Insurers must analyze the support from the group including the availability of financial support in adverse circumstances as well as the risks that may flow from the group to the insurer.

Group risk: The direct and indirect interrelationship between members must be assessed. With regard to solvency assessment, a determination must be made of constraints on the fungibility of capital and the transferability of assets among insurance legal entities.

Responsibilities of the Board of Directors: The Board must consider and approve the insurer’s risk management framework and policy, business plan, risk appetite, and ORSA report; determine that its business strategies are consistent with the risk management framework and policy, and risk appetite; and ensure that the insurer has sufficient capital to run its current and its future business. The Board must also oversee the insurer’s risk appetite management; its monitoring of risk exposures and compliance with appropriate and effect risk management, and approve a report thereon from the RMC at least annually; review the risk management framework and risk management policies at least annually or more frequently if circumstances may significantly affect the insurer’s financial stability and solvency significantly; oversee capital adequacy to ensure support for current and prospective business; and ensure that the RMC is able to work effectively and has sufficient resources.

Responsibilities of Senior Management. These generally parallel the topics above related to the Board, but are by necessity more granular and comprehensive than at the Board level, consistent with management’s responsibilities to manage the company’s operations and as the preparer of information for review by the Board. In addition, senior management must consider risks arising from remuneration arrangements and incentive structures and conduct regular stress testing and scenario analyses.

Head of risk management: The insurer must appoint a person responsible for overseeing the operations of the risk management department, and with the knowledge, understanding and necessary skills to assess relevant information. The head of the risk management is responsible for providing the status of core risks report, including the changes in the characteristics of risks on an enterprise-wide basis, reporting on the implementation of risk management and whether it complies with the risk management framework and policy to Executives and the RMC, at least on a quarterly basis.

Reporting: Reporting is required to senior management and the Board, and must include summarized risk status and risk management compliance reports, reviewed and revised by the RMC, at least quarterly; a summarized assessment annual report presented to the risk steering committee or board of directors at least annually; a risk management report to the Board of Directors at least annually for consideration of the effectiveness of the risk management framework and risk management policy; and reports of major events which may affect the financial stability of the insurer (If any).

Feedback loop: A feedback loop mechanism is required to follow-up and respond to risk profile changes as part of the insurer’s ERM, to identify and address actual or possible violations of risk limits, and to consider internal and external events and changes relating to benefits and expectations of policyholders. The identification of any new risks or information must be conducted on at least a quarterly basis with an established information system to support risk management. The feedback loop must be based on appropriate and good quality information so that strategic decisions can be made in a timely manner. The information system must be reliable and commensurate with the size, nature and complexity of the business operation; be the tool that helps in supporting, monitoring and controlling risk management, through effective and accurate use of data and information; and be protected through secured data storage, limits on access rights to relevant personnel, a backup system and a disaster recovery plan.

The expanded notifications on ERM and ORSA were only recently adopted in January 2019.

While insurers have some prior experiences and training with aspects of those notifications, including ORSA, ORSA is nonetheless a key new requirement for which insurers and the OIC will benefit from experience going forward.

Reporting on ORSA by insurers will not 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.

The OIC work with the industry to enhance the overall performance of insurers in respect of these new requirements as insurers embed them into more effective business practices.

Permanently available to fully absorb losses on a going concern basis, as well as in winding-up.

Loss absorbing on a going concern basis, as well as in winding-up.

Free of any encumbrances/mandatory servicing costs.

Ranking subordinated to policyholder and senior creditors.

Issued and fully paid-up and non-cumulative.

Less permanent than tier 1 resources but nonetheless available to serve as a buffer against losses made by insurer.