A draft notification on insurance company investment is expected to seek approval from the Office of Insurance Commission (OIC) board later this month to broaden investment options for insurers amid the prolonged low-interest-rate environment.
The draft, if approved, will enable local insurance companies, particularly life insurers, to raise their overseas investment to diversify risk, reduce concentration of their investment in the local market, widen investment alternatives to seek higher returns and redress asset liability management, said OIC secretary-general Suthiphon Taveechaiyagarn.
To prevent excessive capital outflow, the OIC will cap overseas investment in terms of the overall asset allocation and each investable asset class at an appropriate level and set risk management requirements such as risk-based capital, enterprise risk management, and own risk and solvency assessment, he said.
According to the current regulations, life insurance companies are limited to allocating overseas assets at 15% of investment assets, real estate investment trusts (REITs) and infrastructure funds at 20%, local corporate bonds at 60%, and local and foreign equities at 30%. There are no limits on investment in government bonds and deposits.
Life insurance companies are scrambling for higher returns to match their promised yields to policyholders -- particularly those who take out insurance products with savings features -- and avoid losses amid falling bond yields and low interest rates.
Over the past few years, life insurers have adjusted by lowering the minimum guarantee to policyholders and focusing on unit-linked or investment insurance products for which customers have to accept risk themselves.
Some firms have diversified to invest in property offering higher returns than bonds but producing a steady income stream and have launched participating policies that guarantee a minimum return to policyholders and with which they can earn additional returns if the insurers' investment yields a better return.
Mr Suthiphon said the draft notification would allow insurance firms to invest more in infrastructure funds and REITs to widen options for them in seeking higher returns and support the government's infrastructure investment.
Insurance companies will also be allowed to hold stakes in companies engaged in healthcare and nursing homes in Thailand to serve the country's ageing society.
Moreover, they will be permitted to invest in tech insurance to encourage them to adopt technology and innovation to provide convenience.
The OIC is conducting a public hearing on the draft notification through its website to gather opinions and suggestions before forwarding the draft to the board.
"The OIC hopes the draft notification will be another measure to help the insurance industry manage problems from low interest rates and the firmer baht by better diversifying investment risk to be in line with the Thai and global economies," Mr Suthiphon said.