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3 October, 2018
Background and Rationale
Trust, honesty and responsibility to the insured and the public are the key pillars of the insurance industry. These pillars are generally reinforced through the maintenance of good corporate governance. With an aim to promote and ensure corporate governance, the Office of Insurance Commission (the OIC) published the draft Notifications re: Corporate Governance of Life and Non-Life Insurance Companies (the Draft CG Notifications).
These Draft CG Notifications are significant in that they serve as Thailand's first-ever legislation to specifically regulate corporate governance. To date, there appears to be a lack of legislation that clearly lays out the key requirements needed to ensure good corporate governance. The insurance industry functions with respect to guidelines that were published by the OIC in 2014, covering such issues as the composition, qualifications and the importance of good governance among the board of directors and other sub-committees of insurance companies (the "Guidelines"). However, as guidelines, they do not have any real legal effect. Therefore, it was difficult for the OIC to effectively request insurance companies to comply with some requirements, such as maintaining a certain number of independent directors and executive directors.
Expected Effective Date
The CG Notifications will come into force 180 days after its publication date in the Royal Gazette, but the provision on the composition of the board of directors will come into force on 1 January 2020. These Draft CG Notifications will replace and repeal the Guidelines. However, it is worth noting that some of the requirements previously prescribed in the Guidelines have been included in the Draft CG Notifications. The details of the Draft CG Notifications are as summarized below.
Key Requirements
| Topic | Note |
|---|---|
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Definitions Set definitions for key positions in the insurance companies are introduced (e.g. executives; managers; directors; and executive directors). Further, definitions relating to the independence of directors (e.g. parent company; group companies; related persons; and controlling person) are clarified. |
The Guidelines lack these definitions, making interpretation difficult. These definitions will provide more clarity and certainty. |
|
Corporate Governance Framework Any insurance company must have a written good corporate governance framework (the Framework), which is approved by its board of directors and reviewed by the OIC. The Framework must include the company's policies and strategies on checks and balances, as well as supervisory systems. The Framework must be submitted to the OIC within 30 days of the CG Notifications coming into force. Following which, any amendments to the Framework that have been approved by the company's board of directors, must be submitted to the OIC within a one month period. |
The Framework requirement is introduced in the Draft CG Notifications |
|
General Requirements for Directors Insurance companies must determine the corporate structure, composition, and the appropriate number of directors with consideration for the nature, size, and complexity of the companies; proper checks and balances; the directors' ability to work together; and compliance with life insurance and public company limited laws. The board of directors of insurance companies 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. |
This concept is stipulated in the Guideline but more details are provided under the Draft CG Notifications. |
|
Composition of the Board of Directors The company's board of directors must consist of:
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This requirement is in line with current requirements under the Guidelines. The above requirement will become effective on 1 January 2020 onwards. |
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Chair of the Board of Directors The chair of the board of directors must be either an independent director or non-executive director, unless an approval is granted by the OIC on a case-by-case basis. |
This requirement is not stipulated in the Guidelines. The above requirement will become effective on 1 January 2020 onwards. |
|
Qualifications of Independent Directors Independent directors must have the qualifications as prescribed in the CG Notifications. |
This requirement is in line with current requirements under the Guidelines which further refer to qualifications of independent directors who will serve as members of the Audit Committee as prescribed under the Internal Control Notifications. |
|
Duty of the Board of Directors In addition, to the board of directors' general responsibilities of ensuring good systems and frameworks within the company, the following key duties and responsibilities are also imposed:
|
This requirement is not stipulated in the Guidelines. |
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Roles and Responsibilities of Directors Directors must observe the following roles and responsibilities:
|
This requirement is not stipulated in the Guidelines. |
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Roles and Responsibilities of Executives Executives are to perform their duties by adopting the strategies and policies issued by the board of directors. In addition, they are also required to:
|
This requirement is not stipulated in the Guidelines. |
Actions to Take
The Draft CG Notifications have completed the public hearing stage. The OIC will finalize and propose the Draft CG Notifications to the Insurance Commission for their consideration and approval in due course.
It is essential that insurance companies are prepared to adapt to the Draft CG Notifications and take a proactive approach to ensure they are able to comply with the Draft CG Notifications when they come into force.
Our insurance team is closely monitoring the situation and will be releasing alerts to ensure that you remain aware of any further updates.
For further information, please contact:
