IRDAI vide IRDAI Press Release dated April 01, 2024, issued an IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024, with an intent to enhance the insurance sector’s growth by simplifying registration, shareholding transfers, capital transfers, amalgamation, listing of shares of insurers on stock exchanges, and to promote ease of doing business.
Background
The Authority has published IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024, (‘Regulation’) in the Gazette of India bearing F. No. IRDAI/Reg/6/200/2024 on March 20, 2024, after repealing the following prescription:
1. IRDAI (Registration of Indian Insurance Companies) Regulations, 2022
2. IRDAI (Other Forms of Capital) Regulations, 2022
3. IRDAI (Manner of Assessment of Compensation to Shareholders or Members on Amalgamation) Regulations, 2021
4. IRDAI (Issuance of Capital by Indian Insurance Companies transacting other than Life Insurance business) Regulations, 2015
5. IRDAI (Issuance of Capital by Indian Insurance Companies transacting Life Insurance business) Regulations, 2015
6. IRDAI (Scheme of Amalgamation and Transfer of Life Insurance Business) Regulations, 2013
7. IRDAI (Scheme of Amalgamation and Transfer of General Insurance Business) Regulations, 2011
Major highlights of the Regulation are mentioned hereinunder.
The following are some of the major changes proposed in the Exposure draft:
- Modification of requirement of prior approval of the IRDAI for listing of shares of insurers on stock exchanges subject to compliance with specified conditions.
- Enabling Provision for relaxation of lock-in period in case the insurer or the shareholder is in financial distress or to facilitate the amalgamation of insurers or shareholders.
- Provide more clarity on the capital structure of the applicants seeking new Registration.
- Provide more clarity on the applicability of the requirement of prior- approval for transfer of shares.
The Salient features of the Regulation are as follows:-
1. Applicability: The Regulation shall apply to the Insurers transacting Life, General, or Health Insurance business in India, or Reinsurance Business and shall come into effect from April 1, 2024, which shall remain in force for three years thereafter.
2. Classes of Insurance Business permitted: Regulation 3 of IRDAI (Registration of Indian Insurance Companies) Regulations, 2022 stating:
(1) The classes of business of insurance for which requisition for registration application may be made are:
(i) Life insurance business.
(ii) General insurance business.
(iii) Health insurance business exclusively.
(iv) Reinsurance business exclusively.
(v) Any other class as may be specified by the Authority.
(2) An applicant shall make a requisition for registration application only for any one of the classes of the business as specified by the Regulation 3(1)
has been modified under Regulation No. 4 of IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024 as:
An applicant may make requisition for registration application for any one of the following class of business of insurance:
(1) Life insurance business.
(2) General insurance business.
(3) Health insurance business exclusively.
(4) Reinsurance business exclusively.
3. Definitions:
- The term ‘Appointed Date’ has been introduced under Regulation 3 (c) IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024 stating that:
“Appointed Date” means
- For the purpose of Chapter VI, the date specified in the scheme as appointed date.
(ii) For the purpose of Chapter VII, the date mentioned in the scheme of amalgamation, notified by the Central Government in the official gazette in terms of sub section (4) of section 37A of the Act, on which the provisions of the Scheme of amalgamation shall come into force;
- The term ‘Assets’ has been introduced under Regulation 3 (d) IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024 stating that:
“Assets”, for the purpose of Chapter VII, includes all assets including the properties of the original insurer which shall, in terms of the Scheme, be taken over by the transferee insurer;
- The term ‘Competent Authority’ has been introduced under Regulation 3 (g) IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024 stating that:
“Competent Authority” means
(a) Chairperson or
(b) such whole-time member or such committee of the whole-time members or such officer (s) of
the Authority, as may be determined by the Chairperson.
- The term ‘Liabilities’ has been introduced under Regulation 3 (o) IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024 stating that:
“Liabilities” for the purposes of Chapter VII, includes the liabilities including contingent liabilities, if any, of the original insurer which shall, in terms of the Scheme, be taken over by the transferee insurer;
- The term ‘Merged Entity’ has been introduced under Regulation 3 (p) IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024 stating that:
“Merged Entity”, for the purpose of Chapter VI, means the resultant insurer consequent upon the implementation of the Scheme.
- The term ‘Original insurer’ has been introduced under Regulation 3 (q) IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024 stating that:
“Original insurer”, for the purpose of Chapter VII, means the insurer which is amalgamated with the transferee insurer as per the scheme of amalgamation;
- The term ‘Residual Value of Assets’ has been introduced under Regulation 3 (w) IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024 stating that:
“Residual Value of Assets”, for the purpose of Chapter VII, means the amount equal to the value of the assets of the original insurer as on the day immediately before the appointed date, less the total amount of liabilities thereof, computed in accordance with the provisions of Chapter VII;
- The term ‘Scheme’ has been introduced under Regulation 3 (x) IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024 stating that:
“Scheme” for the purposes of Chapter VI, means scheme of amalgamation and transfer formulated under section 35 of the Insurance Act, 1938 and not governed by section 37A of the Insurance Act, 1938.
- The term ‘Scheme of Amalgamation’ has been introduced under Regulation 3 (x) IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024 stating that:
“Scheme of amalgamation” for the purposes of Chapter VII, means a scheme prepared by the Authority and sanctioned and notified by the Central Government under the provisions of Section 37A of the Act;
4. Grant of Certificate of Registration: Regulation No. 5(4) of IRDAI (Registration of Indian Insurance Companies) Regulations, 2022 stating:
“After examining the matters considered relevant and upon its satisfaction, the applicant may be registered as an insurer for the class of business for which the applicant is found suitable and the chairperson of the Authority may grant the applicant the Certificate of Registration in Form IRDAI/R3 subject to the following conditions:
(i). The applicant and its promoter(s) and investor(s) shall be “Fit & Proper” on a continuous basis;
(ii). The promoter(s) and investor(s) shall comply with the specified lock in period, on their shareholding from the date of grant of Certificate of Registration;
(iii). The promoter(s) and investor(s) of the applicant shall not create any encumbrance on the equity shares of the applicant during the lock in period as may be specified;
(iv). the shareholders of the applicant shall not create any encumbrance on the equity shares of the insurer without the previous written approval of the Authority in accordance with sub section (4) of section 6A of the Act;
(v). The applicant and promoter(s) shall be continuously bound by all the conditions and the investor(s) by such conditions as may be applicable subject to which the certificate in Form IRDAI/R3 has been issued;
(vi). The applicant shall furnish, within 15 days, evidence of applicant having allotted shares to its promoters and investors in accordance with section 6 of the Act and having complied with the conditions as per R1 approval and R2 approval granted by the Authority; and
(vii) Such other conditions as may be deemed fit at the time of grant of Certificate of Registration.”
has been modified under Regulation No. 6(4) of RDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024 as:
“ Grant of Certificate of Registration: After examining the matters considered relevant and upon its satisfaction, the applicant may be registered as an insurer for the class of business for which the applicant is found suitable and the Authority may grant the applicant the Certificate of Registration in Form IRDAI/R3 subject to the following conditions:
(a) The applicant and its promoter(s) and investor(s) shall be “Fit and Proper” on a continuous basis;
(b) The promoter(s) and investor(s) shall comply with the lock-in period specified in these regulations, on their shareholding from the date of grant of Certificate of Registration;
(c) The applicant/insurer, its promoter(s) and investor(s) shall comply with the provisions of the Act as well as Rules, Regulations, Guidelines, Circulars etc. framed thereunder at all times.
(d) The applicant, promoter(s) and the investor(s) shall at all times comply with all the applicable conditions, subject to which the certificate Form IRDAI/R3 has been issued; (e) The applicant shall furnish, within 15 days, evidence of applicant having allotted shares to its promoters and investors in accordance with section 6 of the Act and having complied with the conditions as per R1 approval and R2 approval.
(f) Such other conditions as may be deemed fit at the time of grant of Certificate of Registration.”
5. Rejection of Application: Regulation No. 5(6) of IRDAI (Registration of Indian Insurance Companies) Regulations, 2022 stating:
“Rejection of Application
i. The requisition for registration application or the application for registration may be rejected by the Authority, after giving the applicant a reasonable opportunity of being heard, in following cases:
a. Where an application is not complete in all respects.
b. Where the requirements under the provisions of the Act or the Regulations framed thereunder are not met at any stage of the process.
c. For any other reasons to be recorded in writing.
ii. The order rejecting the application shall be communicated by the Authority to the applicant, in writing, within a period of thirty days of such rejection stating therein the grounds on which the application has been rejected.
iii. An applicant, whose application for registration has been rejected at any stage, shall not be entitled to a Certificate of Registration”
has been modified under Regulation No. 6(6) of IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024 as:
“Rejection of Application:
(a) The application for issuance of NOC may be rejected by the Competent Authority for reasons to be recorded in writing.
(b) The R1 application may be rejected by the Competent Authority or the R2 application may be rejected by the Authority, after giving the applicant a reasonable opportunity of being heard, in following cases:
(i) Where an application is not complete in all respects.
(ii) Where the applicant has not met the stipulations as laid down in these regulations.
(iii) Where the requirements under the provisions of the Act or the Regulations framed thereunder are not met at any stage of the process.
(iv) For any other reasons to be recorded in writing.
(c) The order rejecting the application shall be communicated by the Competent Authority to the applicant, in writing, within a period of thirty days of such rejection stating therein the grounds on which the application has been rejected.
(d) An applicant, whose application for registration has been rejected at any stage, shall not be entitled to a Certificate of Registration.”
6. Withdrawal of Application: Provisions related to Withdrawal of Application has been introduced under Regulation No. 6(7) of of RDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024 as:
“(a) Any applicant may apply to the Competent Authority for withdrawal of the application for registration at any stage of application, along with reasons.
(b) The Competent Authority may approve or reject the said request for withdrawal for the reasons to be recorded in writing.
(c) In case of rejection of request for withdrawal of application, the R1 application or R2 application, as the case may be, may be rejected in accordance with Regulation 6(6).”
7. Lock-in Period: Regulation No. 5(1) of IRDAI (Registration of Indian Insurance Companies) Regulations, 2022 stating:
Sr. No
Particulars
Investment in the capacity of
Lock-in Period
1.
Investment at the time of or before grant of R3 (i.e. Certificate of Registration)
Promoter or Investor
5 years from the date of grant of R3
2.
Investment during 5 years post grant of R3: In case of change in shareholding pattern
Promoter or Investor
Earlier of the following:
a) 5 years from the date of investment; or
b) 8 years from the grant of R3.
3.
Investment after 5 years but before 10 years post grant of R3: In case of change in shareholding pattern
Promoter
Earlier of the following:
a) 3 years from the date of investment; or
b) 12 years from the grant of R3
Investor
Earlier of the following:
a) 2 years from the date of investment; or
b) 11 years from the grant of R3
Investment after 10 years post grant of R3: In case of change in shareholding pattern
Promoter
2 years from the date of investment
Investor
1 year from the date of investment
Provided that the Authority may relax the lock-in period to enable the insurer to list its shares on the stock exchange(s) in India.
has been modified under Regulation No. 8 of IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024 as:
Sr. No
Particulars
Investment in the capacity of
Lock-in Period
1
Investment at the time of or before the grant of R3 (Certificate of Registration)
Promoter or Investor
5 years from the date of grant of R3
2
Investment during 5 years post grant of R3: In case of change in shareholding pattern
Promoter or Investor
Earlier of the following:
a) 5 years from the date of investment; or
b) 8 years from the grant of R3.
3
Investment after 5 years but before 10 years post grant of R3
In case of a change in the shareholding pattern
Promoter
Earlier of the following:
a) 3 years from the date of investment; or
b) 12 years from the grant of R3
Investor
Earlier of the following:
a) 2 years from the date of investment; or
b) 11 years from the grant of R3
4
Investment after 10 years but before 15 years post grant of R3: In case of change in shareholding pattern
Promoter
2 years from the date of investment
Investor
1 year from the date of investment
5
Investment after 15 years post grant of R3
Promoter
1 year from the date of investment
Investor
Nil
Provided that the Competent Authority may relax the lock-in period in following circumstances:
(i) To enable the insurer to list its shares on the stock exchange(s) in India; or
(ii) Under circumstances of distressed financial position, amalgamation or reorganization pursuant to change in applicable law of any insurer or its shareholder(s):
Provided further that the lock-in period shall not be applicable in case of equity shares allotted to employees or directors of the insurer pursuant to any scheme formed for the benefit of the employees or directors of the insurer:
Provided further that the lock-in period shall not be applicable in case of investor holding not more than one percent of the equity shares of the insurer.
8. Special Purpose Vehicle:
- The Applicant shall comply with conditions specified in the Regulation when promoted by a Special Purpose Vehicle (SPV). These include not issuing convertible instruments, not issuing stock options or sweat equity shares to employees or directors, obtaining prior approval for share transfer, adhering to investment limits and lock-in periods, and adhering to the criteria for the promoter and investor.
- The equity shares must be valued by a SEBI Registered Category-I Merchant Banker, with a report provided to the Board of Directors.
- The SPV’s paid-up capital must be equal to or greater than the applicant’s minimum required capital.
9. Minimum Paid-up Equity Capital:
Class of Insurance Business
Minimum Paid-up Equity Capital
Life insurance business
Rs.100 crore
General insurance business
Rs.100 crore
Health insurance business exclusively
Rs.100 crore
Reinsurance business exclusively
Rs.200 crore
- For arriving at the above numbers, preliminary expenses have to be deducted in compliance with the requirements of Section 6 of the Insurance Act, 1938.
- Equity shares of the applicant company and the SPV shall be issued at face value
- Infusion of funds shall be commensurate with the percentage of their equity stake in the applicant and SPV
10. Investment as “Promoter”: A person shall not be the promoter of more than one life, one general and one health company at a time. The Regulation prescribes submitting an undertaking with respect to the infusion of capital in the insurer to meet its solvency and/or business requirements, if any, in future.
11. Promoter(s) Holding: Minimum shareholding of all the promoter(s) of the insurer shall be collectively maintained at above fifty (50) per cent. Further, Promoter(s), collectively, may dilute their stake in the insurer below fifty (50) per cent but not below twenty-six (26) per cent, when the insurer has a track record of solvency ratio above the control level during 5 years immediately preceding.
12. Investment as “Investor”:
- The investment by a single “investor” shall be less than twenty-five (25) per cent of the paid-up equity capital of the insurer.
- The investment by all the “investors” collectively shall be less than fifty (50) per cent of the paid-up equity capital of the insurer.
- Number of Insurers : An investor may invest in any number of insurers provided that the investment does not exceed ten per cent in any insurer In case of investment of more than 10% but less than 25%, investment by the investor shall be restricted to not more than two insurers in each class of insurance business
13. Nomination of Directors: Provisions related to Nomination of Directors has been introduced under Regulation No. 16 of IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024 as:
“Nomination of Director
(1) The investor shall not nominate any director on the Board of the insurer if the investment by the said investor in the insurer does not exceed ten per cent of the paid-up capital of the respective insurer.
(2) The investor may nominate not more than one director on the Board of the insurer if its investment exceeds 10 per cent of the paid-up capital of the respective insurer.
(3) No shareholder shall nominate any director on the Board of any insurer if it has already nominated a director on the board of any other insurer engaged in the same class of insurance business.”
14. Transfer of Shares: Regulation No. 6(10) of IRDAI (Registration of Indian Insurance Companies) Regulations, 2022 stating:
“Transfer of Shares: No registration of transfer of shares or issue of equity capital of an insurance company, which would result in change in shareholding, shall be made, where:
i. after the transfer, the total paid-up holding of the transferee in the shares of the insurance company is likely to exceed five percent of its paid-up capital; or
ii. the Nominal value of shares intended to be transferred by an individual, firm, group, constituents of a group, or body corporate under same management, jointly or severally exceeds one percent of the paid-up equity capital of the insurance company. Unless the prior approval of the Authority has been obtained for the said transfer in the manner as specified in Schedule 2 of these Regulations”
has been modified under Regulation No. 21 of IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024
Requirement of Prior-Approval for transfer of shares:
No registration of transfer of shares or issue of equity capital of an insurer shall be made without prior-approval of the Authority in following cases:
(1) Where after the transfer, the paid-up equity capital holding of transferee in the shares of the insurer is likely to exceed five percent of the paid-up equity capital of the insurer and any subsequent transfers where the shareholding of the transferee exceeds further 5% of the paid-up equity capital of the insurer, in a financial year.
(2) the nominal value of shares intended to be transferred by an individual firm, group constituents of a group or body corporate under same management jointly or severally exceeds one percent of the paid-up equity capital of the insurer and for any subsequent transfers by the transferor where the paid-up equity capital of the insurer exceeds 1% of the paid-up equity capital, in a financial year.
(3) For the purpose of calculating the quantum of transfer or acquisition of shares, the cumulative transfers or acquisitions made during a given financial year shall be considered, irrespective of number of transactions and number of transferees in case of a transferor and number of transferors in case of an acquirer:
Provided that in case of insurers having its equity shares listed on any stock exchange recognized in India, the above mentioned cumulation shall apply only with regards to equity shares held by a promoter of the insurers.
Further, provisions related to the manner of obtaining prior approval, due diligence, conditions for approval, transfer of shares in case of listed insurance companies, determination of the extent of transfer, Pledge of Shares of Insurance Company, reporting requirements and action for Violation or Non-Compliance have been prescribed under the Regulation.
15. Listing of Equity Shares of Insurer on Stock Exchange: Insurers may list its equity shares on regulated stock if it believes it is in the interests of policyholders, can comply with regulatory stipulations and do not use listing to raise capital or transfer shares which would otherwise be in contravention to the applicable regulatory provisions. The Insurers shall inform the Authority at least 15 days before approaching the regulator.
16. Amalgamation and Transfer of Insurance Business: Insurance businesses cannot be transferred or amalgamated with other insurers unless approved by the Competent Authority under a scheme prepared under section 35 of the Insurance Act.
17. Manner of Assessment of Compensation to Shareholders or Members in case of Amalgamation under section 37A of the Act: This Chapter provides for the manner of assessment of compensation for the shareholders or members whose interests in, or rights against, the transferee insurer resulting from amalgamation are less than his interest in, or rights against the original insurer.
18. Other Forms of Capital: Provisions relating to the raising of funds by insurers through the issuance of ‘Other Forms of Capital’ have been specified in this Chapter.
A copy of the Regulation is attached herewith for your ready reference.
Source category: IRDAI
Attachments
- /2024/379_IRDAI_(Registration,_capital_structure,_transfer_of_shares_and_amalgamation_of_insurers)_Regulations
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