The Office of the Insurance Commission (OIC) aims to enforce the risk-based capital (RBC) 2 regulations by year-end after a public hearing suggested that some insurance firms are prepared to adopt the new rules.

"The framework was brought to the OIC board last year, and the regulatory draft completed a public hearing with market participants, including accounting auditors," said OIC assistant secretary-general Chayanin Kerdpholngarm. "We have planned tentative enforcement of RBC 2 by this year-end, with an approval from the OIC board expected this month."

But the insurance regulator is willing to adjust the regulatory framework if the new rules have a negative impact on Thai insurance firms, she said, as the OIC wants local companies to have a competitive advantage against regional peers.

Under RBC 2, the principal framework does not change, Ms Chayanin said. The insurance regulator will still consider the overall picture of standard balance sheets and how insurance firms are required to reserve adequate capital to cover an array of risks.

There are, however, several major changes from RBC 1 in terms of details such as components of total capital available (TCA), capital deductions, minimum requirement for each tier of capital and the type of risks requiring capital charges.

Required capital reserve is assessed based on six main risks, comprising insurance, market, credit, concentration, surrender (only applicable to life insurance companies) and operational.

For the TCA components, tier 1 capital will be classified by two types: common equity tier 1 (CET 1) and an additional tier.

Tier 1 capital is required to be on a par with or higher than tier 2 capital.

The CET 1 capital floor is required to be at least 65% of the total capital requirement (TCR), while the tier 1 capital floor must be at least 80% of TCR.

"Insurance companies can allocate the cost of immovable assets, such as office headquarters, into CET 1," Ms Chayanin said.

"Capital received from the issuance of financial instruments can be included in additional tier 1 capital, subject to the OIC's approval. The process of debt securities issuance can be counted in tier 2 capital, which is also subject to the OIC's approval."

For non-life insurance companies, complying with RBC 2 will depend on business size, she said.

Normally, small companies are not required to comply with high capital adequacy requirements, while large companies could have lower TCR if they have good risk management and undergo their own risk and solvency assessment.