Thai insurers gain from new funding rules: report

Capital bonds as alternative funding may boost sector capital adequacy.

The move to allow Thai insurers to utilise capital bonds as alternative source of financing will improve sector capital adequacy, financial flexibility and possibly reduce overall capital cost, according to an AM Best report.

Whilst a more optimal capital structure will be beneficial to risk-adjusted capitalisation, a potential excessive financial leverage could adversely affect liquidity and cash flow and result in instability.

Higher financial leverage could put more debt repayment pressure on companies with relatively modest earnings, the report said.

Currently, the new rules only cover Thailand-licensed life and non-life insurers, excluding local branches of foreign carriers. Under the new regulations, issuance proceeds may account for an insurer's total available capital if eligibility conditions are met.