REGULATIONS FOR ESTABLISHMENT OF INSURANCE BUSINESS IN BHUTAN

REGULATIONS FOR ESTABLISHMENT OF INSURANCE BUSINESS IN BHUTAN - 1 -

REGULATIONS FOR ESTABLISHMENT OF INSURANCE BUSINESS IN BHUTAN In accordance to the Financial Institutions Act of Bhutan 1992, an Applicant seeking for a license to conduct the business of insurance is hereby required to comply with these regulations and submit the documents required therein. 1. Capital requirement 1.1. The initial minimum paid-up capital for a new insurance company shall be Nu.100 million. The initial capital will be raised to Nu.200 million within three years of commencement of business. The overall capital structure of the proposed company including the authorized capital shall be approved by the RMA. 1.2. The promoters contribution shall be a maximum of 70 percent of the paid-up capital of the bank at any point of time. The initial capital (30 percent), other than the promoters contribution, should be raised through public issue. In the event the public subscription remains undersubscribed, it shall be first issued to RGOB and thereafter to the promoters themselves. In case the promoters contribution to the initial capital is in excess of 70 percent, they shall dilute their excess stake within three years of its operations. 1.3. While increasing capital to Nu.200 million within three years of commencement of business, the promoters will have to bring in additional capital, which would be at least 70 percent of the fresh capital raised. The remaining portion should be raised through public issue. 1.4. 10 percent of the paid up capital to be deposited with the RMA in cash after the issuance of In-Principle Approval by the RMA. The Insurance company may invest the amount so deposited on quick assets with prior approval of the Authority, after the issuance of license. 1.5. Organization fund to meet setting up costs. 2. Mode of payment The capital contribution by the promoters and subscribers of the proposed insurance company shall be deposited in RMA and must be verified by the Financial Institutions Supervision Division of the Royal Monetary Authority. 3. Proportion of share capital contribution permitted: promoters vs. the public i). Promoter 70% ii). Public 30% - 2 -

3.1. The Insurance Company should be a Public Limited Company registered under the Companies Act 2000. 3.2. No company together with its subsidiaries 1 can have ownership in proposed company more than 30 percent of the paid up capital of the insurance company. 3.3. No individual, together with his/her immediate family 2 members and companies in which he/she has ownership of 10 percent or more, can have ownership of more than 20 percent of the paid up share capital of the insurance company. 3.4. Cross-ownership 3 : No insurance company can have ownership in another insurance company exceeding 5 percent of the paid up capital of another insurance company. 3.5. Cross-ownership: No holding company can have ownership in two or more insurance companies exceeding 5 percent of the paid up capital of the respective insurance company/ies. 4. Governance 4.1. The promoters are expected to provide information on the financial standing, experience and suitability of the members of the first Board of Directors. In addition, the proposed Board of Directors should comply with the fit and proper criteria for the appointment of Directors as indicated under Section 1.3.2 of the Prudential Regulations 2002. 4.2. Promoters must refrain from employing persons who hold positions of strategic importance 4 in the existing insurance company, as recruitment of such persons would be detrimental to the smooth functioning of those companies. The presence of competent management staff, which could be expected to carry on the business of the company in compliance with statutory and prudential requirements, is an important criterion in evaluating an application for the establishment of a new company. In the event a new insurance company employs persons identified under 4.2, a cooling period of one year must be observed by new insurance companies. 4.3. The composition of Board of Directors should be such that every two of the five directors must have more than five years experience in insurance /investment / underwriting and finance business. 1 Subsidiary company shall mean the definition provided in the Companies Act 2000. 2 Immediate family means spouse of an individual, the individual s minor children, and any of the individual s children (including adults) residing in the individual s home. 3 Cross Ownership refers to owning of stock in other companies with which a given company does business in the same sector. 4 Chief Executive, Chief Marketing Officer/ Appointed Actuary/Chief Investment Officer/Chief of Internal Audit and Chief Finance Officer, Chief Underwriting Officer, Chief Reinsurance officer) - 3 -

4.4. As a matter of desirable practice, not more than one member of an immediate family or a close relative 5 or an associate (partner, employee, director, etc.) should be on the Board of the company. The definition of a family or close relative provided by RMA shall be binding. 4.5. The CEO and the other senior officers of the proposed company should be fit and proper persons to hold such positions as required by the RMA. In addition, the appointment of CEO and deputy CEO must be approved by the RMA. 4.6. The RMA has the power to suspend /remove key personnel of the company if they are found to have committed any infraction against any provisions under the FI Act 1992 or other relevant laws. 5. Other Requirements 5.1. Licensed insurance company shall pay an annual renewal license fee of Nu. 50,000. 5.2. The new insurance company shall not be allowed to set up a subsidiary that provides financial services for at least three years from the date of commencement of business. 5.3. All insurance company should obtain the prior approval of the RMA to carry on their business in any place. All new insurance company shall open five branches during the first three years of operation. Currently, RMA requires insurance company to open one branch in every region 6. 5.4. The new insurance company shall have a high powered Customer Grievances Cell to handle customer complaints. 6. Issue of License 6.1. After consideration of the documents and other investigations, if the RMA is satisfied that the application may be approved in principle, the Board may issue a letter of In-Principle Approval. This will be valid for the period stated in such letter, which shall not exceed a period of twelve months. During this period the applicant should take all necessary preliminary measures specified therein. The issue of a Letter of In-Principle Approval does not bind the RMA to issue a license. 6.2. A company in respect of which a Letter of In-Principle Approval has been issued should not commence business before the issue of a licence. Every 5 Close relative here refers to family members up to second degree of consanguinity. 6 Bhutan is divided into four region for this purpose namely, Western Region; Thimphu, Paro, Haa, Gasa and Punakha; Central region; Wangdue Phodrang, Tsirang, Trongsa, Bumthang, and Zhemgang; Southern Region; Samtse, Chukha, Dagana, Sarbang, and Samdrup Jongkhar and Eastern Region; Lhuntse, Mongar, Trashigang, Pema Gatshel and Trashi Yangtse. - 4 -

advertisement, notice etc. issued prior to the issue of the licence should specify that it has not been issued a licence to carry on insurance business. 6.3. An applicant upon complying with the conditions specified in the Letter of In- Principle Approval may request the RMA to issue a license. 6.4. The RMA being satisfied that a licence may be issued to an applicant to carry on insurance business, may, with the approval of the RMA Board issue a licence to such applicant. 6.5. A licensed insurance company shall commence business within three months of the issue of a licence. 7. Required documents/information/analysis to be submitted to the RMA The application for approval to establish a new insurance business shall be submitted to the Royal Monetary Authority of Bhutan with all the accompanying documents/information required along with an application fee of Nu.100,000 (Ngultrum One Hundred Thousand Only) in cash/draft/cheque in favor of the Authority. The RMA shall only consider application that includes the following: (a) Letter of Application (see Annex I); (b) Application Form ( see Annex II ) (c) Biographical report (see Annex III) for each promoter and director of the proposed insurance business; - 5 -

ANNEX I Letter of Application Date The Managing Director Royal Monetary Authority of Bhutan Thimphu Bhutan Subject: Application to Establish an Insurance Business in Bhutan Dear Sir/Madam, In accordance with Article 4 (1) of the Financial Institutions Act 1992, we would like to apply for a license to establish an insurance business in Bhutan. As required, the documents requested by the Royal Monetary Authority are enclosed within. We look forward to receiving your approval for the establishment of the proposed business at your earliest convenience. Sincerely yours, Signature: Name: Address: Telephone number: Fax No.: Email: Encl: documents/information pertaining to the application - 6 -

ANNEX II ROYAL MONETARY AUTHORITY OF BHUTAN LICENSING APPLICATION FORM (Please ensure that this form is filled properly. In case of any clarifications, please feel free to call or visit Financial Institutions Supervision Division of RMA subject to prior appointment). In accordance to the Financial Institutions Act of Bhutan 1992, an application form is required to be submitted by the applicant to the Royal Monetary Authority for a license to conduct the business of 1. Name of the Applicant: Address: 2. Name of applicant Company Head Office. Address Phone No... Fax No. E-mail address. 3. Please indicate which of the following activities the applicant intends to provide or seek to be licensed: (i) (ii) (iii) (iv) Life Insurance (State the Classes of insurance business to be licensed) General Insurance(State the Classes of insurance business to be licensed) asset management securities brokerage 4. Proposed Articles of Incorporation 5. Details of Promoters (use additional sheets if necessary) - 7 -

(a) Provide list of promoters/shareholders/shareholding of the company to be registered Name No. of shares Value of shares % of total (In Nu.) Shares (b) If some promoters mentioned in 5 (a) are natural persons, state their name, nationality and citizenship ID card number Name Nationality Citizenship ID card no. (c) If some promoters mentioned in 5(a) are unnatural persons/corporate Bodies, state their name, Place of Registration and Registration No. Name Place of Registration Registration No. - 8 -

6 Capital Structure of the company:- Amount of Authorized Capital and No. of Shares Amount of Issued Capital and No. of Shares Amount of Paid Up Capital and No. of Shares 7. Please attach an organization chart outlining the various departments of the organization, including reporting structure of the employees. For each department, please provide a description of its activities: 8. Proposed key post holders: Name and Address: Date and Place of Birth: Nationality: Family Status: Details of Academic Qualification: Details of Professional Qualification: Working Experience: Any disciplinary action(includes dismissal and suspension) taken by RGOB/former employers/ regulatory body; Any litigation with which Directors and key persons have been involved in the last five years; Any investigation done on employer, company or organization with which the key persons have been associated as a officer, manager or shareholder. (Key post holders includes but is not limited to Executive management, Chief Marketing Officer/ Appointed Actuary/Chief Investment Officer/Chief of Internal Audit and Chief Finance Officer, Chief Underwriting Officer, Chief Reinsurance officer) Please note that any changes in the above office must be notified to the Chief, Financial Institutions Supervision Division, RMA, within 7 days of each change. 9. Business plan for the first three years of operations which should include but is not limited to the following areas:- A description of the model used for financial projections should be provided with assumptions for a period of three years, - 9 -

Market Research and Analysis incorporating market penetration, consumer needs, and target market, etc., Balanced Geographical spread to ensure that the convenience and needs of communities in the proposed market areas to be served, Products to be sold and channels of distribution, Methodology/Approach to be used for underwriting of proposals, Investments strategy Information Technology Information Policy and Customer service Retention limits and Reinsurance Recruitment and Training Internal Controls Product pricing methodology for products not governed by market tariffs and Company s premium Tables for tariff products with rebates. DECLARATION I, the undersigned, solemnly declare that the above information given in this application form on behalf of the Applicant Company are true, complete and correct to the best of my knowledge and belief and can be verified at any time. Should RMA come across any inconsistencies on the information provided, I hereby agree to fully abide by the penalties listed under the Article 58 of the Financial Institutions Act of Bhutan 1992. Further, I would like to pledge that if granted a license to conduct the business, the company will not violate any laws and regulation of the RMA. Name Position held.... Signed... (Affix legal Stamp) Date.. Witness. - 10 -

BIOGRAPHICAL REPORT ANNEX III 1. Full Name: 2. Date of Birth: 3. Place of Birth: 4. Citizenship: Passport Number: Country of Issue: Right-to-work in Bhutan: Yes ( ) No ( ) Visa Type: Expiration Date: 5. Full Address: (a) Permanent: (b) Temporary: Telephone Number: Telephone Number: 6. Present Occupation: Firm Name: Business Address: Nature of Business: Job Title: - 11 -

Telephone Number: Name of Immediate Superior: 7. Marital Status: Single ( ) Married ( ) Divorced ( ) Separated ( ) If married, Spouse s Name: Occupation: Spouse s Passport Number: Country of Issue: Dependents: Name (First, Middle, Last) Relationship Age 8. Father s Name: Mother s Name: Address: Occupation: Address: Occupation: 9. Education Name & Address of School Dates of Attendance Major Area of Study Degree Granted & Date Awarded High School - 12 -

University (Undergraduate) University (Graduate) Professional or Technical School Training Seminar 10. Employment Record (pertaining to the previous fifteen years) Use additional sheets, if necessary, and account for all gaps in employment. Name & Address of Employer Dates of Employment Position Held & Duties Immediate Superior Reason for Leaving 11. Have you a license to practice any profession? Yes ( ) No ( ) If yes, give details: (a) Nature of license: (b) Date Issued: (c) Number of license, if any (d) Licensing Agency and Address: - 13 -

12. If self-employed, describe each enterprise, including the name, address, province of incorporation, your percentage of ownership and the type of business of each corporation or other entity which you own or control. (Control means ownership of 10% or more of the stock or ability to effectively control the management of the corporation or other entity). List names, addresses and percentage of control and/or ownership of other incorporators, partners or directors of the entity or corporation referred to above. 13. Are you employed in any professional capacity, or do you perform any services for or have any business connections with any institution which is subject to the supervision of the Royal Monetary Authority of Bhutan, or any other authority of the Royal Government of Bhutan? Yes No ( ) ( ) If Yes, indicate the name of the institution, address and nature of your work. 14. Have you had, or do you now have, any financial interest, direct or indirect, in any institution/bank under the supervision of any Government authority? Yes No ( ) ( ) If Yes, give the name of the institution, address and nature of the financial interest. 15. Being a promoter of an insurance company, how and from Yes No what sources will you pay for your proposed amount of share capital? a. Own Cash ( ) ( ) b. Borrowings from a bank or other financial institution If Yes, give name of institution ( ) ( ) c. Other sources If Yes, give details ( ) ( ) 16. Income tax clearance: Fiscal Year (Attach tax clearance certificate) - 14 -

17. Are you disqualified from election or nomination or from occupying the post of Director owing to the following circumstances: (1) He (or she) has less than 15 years of experience in insurance/finance/banking business; (2) He (or she) is insane or mentally unsound; (3) He (or she) is insolvent and adjudicated bankrupt; (4) He (or she) has been convicted by a court in any criminal offense or has been involved in any fraud/forgery, financial crime or other illegal activities; (5) He (or she) is a Director of any other insurance company; (6) He (or she) is a partner in any contract with an insurance company in the capacity of legal advisor, advisor, consultant, etc. 18. Answer Yes to any of the questions below if they apply to you as an individual, or a partner, director of a corporation. Except for minor traffic violations: a. Are any arrests, indictments, criminal information or Yes No other criminal proceedings now pending against you? ( ) ( ) b. Where you ever convicted for any violations of the law? ( ) ( ) c. Have you or has any partnership of which you were a principal officer or major stockholder ever been judged bankrupt? ( ) ( ) d. Has any business of which you were a director, officer, partner or major shareholder (5% or more of the voting shares) defaulted on its servicing obligations (principal and/or interest) on outstanding debt or been involved in unacceptable foreign exchange transactions? ( ) ( ) e. Has any enterprise in which you were a partner, director or officer been the subject of criminal indictment or other criminal proceedings? ( ) ( ) - 15 -

DECLARATION I certify that I am aware that it is an offence under the Article 58 of the Financial Institutions Act 1992 to provide the Royal Monetary Authority any information which is false or misleading in a material particular in connection with an application. I certify that the information given in form above is complete and accurate to the best of my knowledge, information and belief and that there are no other facts relevant to this application of which the Royal Monetary Authority should be aware. I undertake to inform the Royal Monetary Authority of any changes material to the application which arises while the authority is considering the application within 7 days of each change. I also undertake that as long as I continue to be a Director/Shareholder of the insurance company, I will notify the Royal Monetary Authority of any material changes to, or affecting the completeness or accuracy of, the information given above as soon as possible, but in any event no later than 10 days from the day the changes come to my attention. Further, I would like to pledge that as long as I continue to be a Director/Shareholder of the insurance company, I will not violate any laws and regulations of the RMA. Name Position held... Signed.. (Affix legal Stamp) Date Witness.. - 16 -