The new regulations are proposing major changes in Indian insurers’ fit and proper criteria, allowable limits of investment, lock-in period on investment, process of registration and criteria for investment by Private Equity Funds
The minimum shareholding of promoter(s) has to be maintained at above fifty (50) per cent of the paid up equity capital of the insurer. Promoter(s) may dilute their stake in the insurer below fifty (50) percent but not below twenty-six (26) percent of the paid up equity capital of the insurer in case the insurer has track record of solvency ratio above control level during 5 years immediately preceding the dilution of stake by promoter(s) and the shares of the insurer are listed on the stock exchange in India
Hyderabad:
Revamping its existing regulations, including tightening it in a few segments, the insurance regulator IRDAI has now said the PE Fund or its Parent Fund which has completed 10 years of operation having investible funds of more than $ 100 million; and has raised (including its group entity) $500 million are allowed to be promoters of the re/insurance companies.
In its Exposure Draft of “Registration of Indian Insurance Companies) Regulations, 2022”, on Thursday” the IRDAI has said a Private Equity Fund may invest in any insurer in the capacity of “promoter”, only if it has invested in financial sector in India or the other jurisdictions.
The new regulations are proposing major changes in Indian insurers’ fit and proper criteria, allowable limits of investment, lock-in period on investment, process of registration and criteria for investment by Private Equity Funds.
Further, the new regulations say investment in the capacity of investor, directly or indirectly, in an Indian insurer should not be less than twenty five (25) percent of the paid-up equity share capital of insurer and the investment will be restricted to not more than two life, two general, two health and two reinsures.
However, these conditions wouldn’t be valid in case of investment up to 10 percent of the paid up equity capital of the insurer. Also these conditions will not be applicable in case of investment where the investor doesn’t appoint/nominate director on the board of the insurer(s), in case of a one-time investment by an investor in an unlisted insurer, The investor has to make an upfront disclosure to this effect to the insurer.
Investment as “Promoter”
The person shall not be a promoter of more than one life insurer, one general insurer,
one health insurer and one reinsurer and the person shall submit an undertaking to infuse capital in the insurer to meet its solvency/business requirements, if any, in future.
Promoter(s) Holding:
The minimum shareholding of promoter(s) has to be maintained at above fifty (50) per cent of the paid up equity capital of the insurer.
Promoter(s) may dilute their stake in the insurer below fifty (50) percent but not below twenty-six (26) percent of the paid up equity capital of the insurer in case the insurer has track record of solvency ratio above control level during 5 years immediately preceding the dilution of stake by promoter(s) and the shares of the insurer are listed on the stock exchange in India.
A company which is a subsidiary as defined in section 2(87) of that Act.
A company which is a subsidiary may be allowed to be a promoter of the applicant if it meets the following conditions:
-The said company is listed on the stock exchange(s) in India,
– The said company has its own source of funds, independent from its holding
company,
– The said company has a net worth of atleast Rs.500 crore as at the end of
the financial year preceding the date of application,
– The holding company of said company is not subsidiary of any other company
Non-operative Financial Holding Company
In case the applicant is promoted by an Special Purpose Vehicle or an Non-operative Financial Holding Company (NOFHC), the following conditions shall be complied with:
-The SPV/NOFHC shall not issue convertible instruments of any kind.
– No stock options / sweat equity shares shall be issued to the employees/directors of
SPV/NOFHC;
-The equity capital of the SPV/NOFHC shall be in accordance under section 6 of the
Insurance Act, 1938;
-Prior approval of the Authority shall be obtained for transfer of shares of the
SPV/NOFHC as per the limits specified under Section 6A of the Insurance Act, 1938
read with IRDAI (Transfer of Equity Shares of Insurance Companies) Regulations,
2015.
-The investment limits, lock-in period and other requirements as per these Regulations
shall also be applicable at SPV/NOFHC level.
-The criteria as specified in Regulation 5(2)(iii) shall also be applicable for the promoter
and investor of the SPV/NOFHC.
-The infusion of capital in the SPV/NOFHC, by its promoters/investors, shall be
commensurate with the percentage of their equity stake in the SPV/NOFHC.