IRDAI (Other Forms of Capital) Regulations_ 2022

The Authority vide reference no. IRDAI/Reg/8/187/2022 dated December 05, 2022 has notified the IRDAI (Other Forms of Capital) Regulations, 2022, with an objective to provide for effective regulatory framework for issuance of Other Forms of Capital by Insurers other than a Foreign Re-insurer’s Branch and to specify minimum reporting and disclosure norms.

These Regulations shall supersede IRDAI (Other Forms of Capital) Regulations, 2015 and shall be in force for a period of 3 years from the date of their publication in the Official Gazette, unless reviewed or amended earlier.

Major Highlights of the notification are:

• 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.

• To qualify Preference shares or subordinated debt as “Other forms of capital”, the criteria as prescribed in the 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 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.
• Insurers are permitted to list their Subordinated Debt only on the Indian stock exchanges.
• The Regulation prescribes the seniority of the claims in following order: (i) Policyholder (ii) Creditors (iii) Sub-ordinated Debt holders (iv) Preference shareholders and (v) Equity shareholders
• The Insurer shall require prior approval of the Authority for payment of dividend or interest for any financial year only 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 conditions as prescribed
• In the event of any non-payment of interest and the non-repayment of redemption amount of debentures by the Insurer, 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 Regulations). In addition, Insurer shall not invest in Other forms of Capital of another Insurer having common promoter.

The Boards of Insurers shall be responsible for ensuring compliance with the 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

• /2022/123_IRDAI_(Other_Forms_of_Capital)_Regulations,_2022.pdf