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Exposure Draft – IRDAI (Other Forms of Capital) Regulations_ 2022

IRDAI has issued an Exposure Draft on the “IRDAI (Other Forms of Capital) Regulations, 2022” dated August 2, 2022 (“Draft Regulations”), with an objective “to provide for effective regulatory framework for issuance of Other Forms of Capital by Insurers and to specify minimum reporting and disclosure norms”.

Some of the key changes being proposed in the Draft Regulations are: –

Discontinuation of the prior approval of Authority for raising resources through issue of OFC;

  • Discontinuation of the prior approval for exercising call option on existing OFC, subject to conditions;
  • Revision of the limits up to which OFC resources can be raised by insurers;
  • Boards of insurers to be responsible for ensuring compliance with the Regulations; and
  • Rationalization of the other compliance requirements.

Major highlights of the Exposure Draft are as follows:

  • The Draft Regulations, if notified, would supersede the “IRDAI (Other Forms of Capital) Regulations, 2015”.
  • Definitions have been prescribed by the Authority of which few important ones are as follows:
  • “Other forms of capital” (OFC) means the following instruments issued by an Insurer in the manner specified herein:

(a) Preference Share capital; or

(b) Subordinated debt

  • “Preference Share Capital” means the preference share capital as defined in explanation (ii) to section 43 of the Companies Act, 2013 and satisfying the criteria laid down in these Regulations.
  • “Subordinated debt” means Debenture as defined in Section 2(30) of the Companies Act, 2013 and satisfying the criteria laid down in these Regulations; and any other debt instrument as may be permitted by the Authority.
  • To qualify Preference shares or subordinated debt as “Other forms of capital”, the criterias as prescribed in the Draft Regulations needs to be fulfilled.
  • For issuance of “Other forms of Capital”, the conditions such as all instruments shall be non-convertible, fully paid up and unsecured, shall not exceed the limit specified in FEMA Act, 1999 or Regulations or any other stipulations issued thereunder , etc shall be fulfilled.
  • The Insurer shall require prior approval of the Authority for payment of dividend or interest for any financial year if
  • the solvency is below the minimum control level of solvency; or
  • the impact of such accrual or payment would result in the control level of solvency falling below or remaining below the regulatory requirement specified by the Authority; or
  • where the impact of accrual or payment of interest results in net loss or increases the net loss, the Insurer shall obtain prior approval of the Authority for such payment.
  • The Insurer issuing the instruments shall file a Report within 15 days from the date of allotment to the Authority specifying the details such as total amount raised, purpose of the issue, etc as prescribed
  • Insurers are not allowed to issue any instrument with “put option” but are allowed to issue the instruments with “call option” subject to the restrictions prescribed
  • I n the event of any non-payment of interest, the non-payment of redemption amount of debentures by the Issuer the same shall not be construed as an “Event of Default” or be included in an Event of Default Intimation.
  • Investment by an Insurer in Other forms of Capital of another Insurer shall not be considered as an admissible asset for determining control level solvency (subject to the conditions specified in the Draft Regulations). In addition, Insurer shall not invest in Other forms of Capital of another Insurer having common promoter.
  • The total quantum of the instruments under other forms of capital taken together shall be lower of the following, at any point in time:
  • 50 % of the total Paid up Equity Share Capital and Securities premium of an Insurer
  • 50 % of the net worth of the Insurer.
  • The Boards of Insurers shall be responsible for ensuring compliance with the Draft Regulations for issuance of Other forms of Capital and for determination of “interest/coupon rate for debt or dividend rate for preference shares”.

Source category: IRDAI

Attachments

  • /2022/71_2022-08-02_FW__Exposure_Draft-IRDAI(Other_Forms_of_Capital)Regulations_2022.pdf

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