Sutee Mokkhavesa, president of Muang Thai Life Assurance, says the adjustment enhances the investment capacity of institutional players. (Photo: 123RF)

The Office of Insurance Commission's (OIC) decision to reduce the equity risk charge for domestic investments is expected to unlock significant institutional inflows into the stock market this year, as insurers gain greater flexibility to allocate capital to higher-return assets.

Under the revised framework, the risk charge applied to Thai equities under the Risk-Based Capital (RBC) regime has been lowered from 25% to 18%. The move effectively reduces the financial burden on life and non-life insurers, enabling them to increase their exposure to equities while maintaining regulatory capital adequacy.

Sutee Mokkhavesa, president of Muang Thai Life Assurance, said the adjustment enhances the investment capacity of institutional players.

"Lowering the risk charge allows insurers to allocate a greater proportion of their capital to equities, as the RBC framework assesses capital adequacy relative to the risks held," he said.

The reduction is expected to serve as a key catalyst for fund flows into the Thai stock market, supported by statistical evidence indicating that the 18% level is appropriate for prevailing market risks. With a lower capital requirement, insurers are further incentivised to shift allocations towards equities in search of yield.

The policy also strengthens the relative attractiveness of Thai stocks compared with foreign equities, which continue to carry a higher risk charge of 25%, even in developed markets. This creates a competitive advantage for domestic equities in institutional portfolios, said Mr Sutee.

HIGHER RETURN POTENTIAL

With reduced capital constraints, insurers are better positioned to take on calculated risks to achieve higher expected returns, supporting long-term portfolio optimisation. Importantly, the 18% threshold has been calibrated through rigorous stress testing to ensure that insurers' capital buffers remain sufficient under adverse scenarios.

Stress tests conducted under the supervision of the OIC play a critical role in validating the policy shift. These simulations assess whether insurers can withstand market shocks while maintaining adequate capital levels, ensuring that increased equity exposure does not compromise financial stability.

According to the OIC, the results confirm that the revised risk charge aligns with actual risk conditions and supports a prudent expansion of investment scope. By combining stress testing with back-testing methodologies, regulators have reinforced confidence that the system remains resilient even as insurers pursue higher-yield strategies.

BROAD-BASED GAINS

The policy is expected to benefit the entire Thai equity market, as insurers gain the ability to increase allocations across listed stocks significantly. Companies offering strong earnings growth and high expected returns are likely to attract greater institutional interest.

Overall, the measure removes structural constraints on insurers' capital deployment, paving the way for increased institutional participation in Thai equities.

It also enhances the market's competitiveness relative to global alternatives, reinforcing its appeal in an environment where investors are increasingly seeking both yield and resilience, said Mr Sutee.

Nevertheless, market participants emphasise the need for further reforms to sustain long-term attractiveness. These include stricter enforcement of corporate governance standards, improvements in return on equity and a strategic shift from traditional "old economy" sectors towards innovation-driven, technology-led industries.

Such structural upgrades, while challenging, are seen as essential to elevating Thailand's capital market and ensuring its continued relevance in an increasingly competitive global investment landscape, he added.