Hyderabad:
The insurance regulator IRDAI has prepared a set of draft regulations for providing compensation to the shareholders whose rights against the acquiring insurer stand reduced in case of amalgamation after any merger and acquisition(M&A) among re/insurers. .
The Insurance Act, 1938 has laid down that every policyholder or shareholder or member of each of the insurers, before amalgamation, will have the same interest in, or rights against the insurer resulting from amalgamation as he had in the company of which he was originally a policyholder or shareholder or member:
The Act has also provided that where the interests or rights of any shareholder or member are less than his interest in, or rights against, the original insurer, he will be entitled to compensation, which shall be assessed by the Authority in such manner as may be specified by the regulations.
In accordance with the proviso of the the Insurance Act, 1938, the shareholders and members whose rights have been adversely impacted by the scheme of amalgamation /merger will be entitled to compensation.
For the purpose of determination of such compensation, the IRDAI has comw out with the draft regulations with the following features-
-It provides for compensation to the shareholders whose rights against the acquiring insurer has been reduced. Such compensation will be paid based on the residual value of the assets.
-The residual value of the assets shall be the amount equal to the value of the assets of the acquired insurer as on the day immediately before the appointed day, less the total amount of liabilities.
-The compensation shall be paid either in cash and/or in kind or partially in cash and partially in kind.
-It provides for separate provisions for payment of compensation for merger/ amalgamation of the branch of a foreign reinsurer.
Every shareholder of the acquired insurer will be given such amount as compensation, as bears to the residual value of the assets, the same proportion as the amount of paid-up capital of the shares held by the shareholder bears to the total-up capital of the acquired insurer.
Where equity shares of one or more shareholders are not fully paid-up, the unpaid portion on such equity shares shall be deducted from the compensation payable.
Further, where the preference shares of acquired insurer have not been taken over by the acquiring insurer, such preference shareholders shall get preference over equity shareholders.
Where the amount of compensation offered in terms of these regulations is not acceptable to holders of not less than 10 percent of the paid up equity capital of the acquired insurer to whom the compensation is payable, such aggrieved persons may prefer an appeal to the Securities Appellate Tribunal before such date as may be notified by the IRDAI.
The time period for appeal may be specified by the IRDAI which will not be less than 30 days from the date of intimation of compensation.