The insurance regulator IRDAI has put a five year lock in period for any Private Equity(PE) investment in insurance companies.
Unveiling its detailed guidelines on PE investment in the insurance sector on Tuesday, IRDAI has clarified that a Private Equity(PE) Fund will not be allowed to invest directly in an Indian insurance company in capacity of a promoter and can invest through a Special Purpose Vehicle (SPV ) in an Indian insurance company.
The five year lock in period will be applicable on SPV and also on the shareholders of the SPV.
“Private Equity Fund” includes an Alternative Investment Fund registered with SEBI under the SEBI (Alternative Investment Fund) Regulations, 2012 and / or a Fund specifically formed for investment in one or more entities by one or more persons.
Rajesh Relan, former MD & CEO, PNB Metlife
“We welcome the PE guidelines announced by the IRDAI. These will enable the entry of professionals in the insurance industry to become promoters. Indian capital is hard to find since it is a long tailed business that requires long-term investors. These guidelines will enable incremental flow of FDI into the country and will unleash a new era for formation of new-age insurance companies that will lead to deeper penetration and growth of insurance industry,'' said Rajesh Relan,who has applied for a license to the IRDAI to set up a health insurance company with the PE investment.
Some of salient features of the new regulations include;
A Private Equity Fund through an SPV can’t be a promoter for more than one life insurer, one general insurer, one health insurer and one reinsurer;
-Scheme to be filed with SEBI in accordance with the provisions of the relevant SEBI regulations, as applicable;
-The investment memorandum or the charter documents of the investor or the investment vehicle, as the case may be, must permit the investment to be made in the least upto the proposed limits including in respect of the future capital requirements of the insurance company;
-Any induction of new shareholder/s in SPV by issue of fresh shares beyond 25 percent shall require the prior approval of the IRDAI;
-The minimum shareholding by promoters / promoter group should at all times be maintained at 50 percent of the paid up equity capital of the insurer. However, where the present holding of the promoters is below 50 percent, such holding shall be the minimum holding.
-The investment shall be subject to compliance of Fit and Proper criteria. A self-certification for “Fit & Proper” shall be filed along with the application for transfer of the shares.
-The Indian insurance company shall comply with the Indian Insurance Companies (Foreign Investment) Rules, 2015;
-Further, the Chairman of the Board of the Indian Insurance Company shall be an independent director, failing which the CEO / Managing Director / whole time director (WTD) should be a professional and should not be a nominee of a promoter.
-At least one third of the directors on the Board of the insurance company must be independent directors;
– An undertaking to subscribe to the rights issue of the insurance company to be provided to ensure that the Indian insurance company is not cash strapped.
– An undertaking of the post lock in period divestment plan preferably through an IPO in accordance with the relevant regulation applicable for such divestment shall be submitted.
– A specific undertaking shall be given by the Private Equity Fund/s to not to create any encumbrance on or leverage the investment
– In case the investment is onetime, then the Private Equity Fund shall make an upfront disclosure to this effect.