IRDAI vide Circular dated February 2, 2024, issued an exposure draft on IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024 (‘Exposure Draft’) 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 Exposure Draft aims to consolidate the following regulatory prescriptions:
a. IRDAI (Registration of Indian Insurance Companies) Regulations, 2022
b. IRDAI (Other Forms of Capital) Regulations, 2022
c. IRDAI (Manner of Assessment of Compensation to Shareholders or Members on Amalgamation) Regulations, 2021
d. IRDAI (Issuance of Capital by Indian Insurance Companies transacting other than Life Insurance business) Regulations, 2015
e. IRDAI (Issuance of Capital by Indian Insurance Companies transacting Life Insurance business) Regulations, 2015
f. IRDA (Scheme of Amalgamation and Transfer of Life Insurance Business) Regulations, 2013
g. IRDA (Scheme of Amalgamation and Transfer of General Insurance Business) Regulations, 2011
The following are some of the major changes proposed in the Exposure draft:
1. Removal of requirement of prior-approval of the IRDAI for listing of shares of insurers on stock exchanges subject to compliance of specified conditions.
2. Enabling Provision for relaxation of lock-in period in case the insurer or the shareholder is in financial distress or to facilitate amalgamation of insurers or shareholders.
3. Provide more clarity on capital structure of the applicants seeking new Registration.
4. Provide more clarity on applicability of requirement of prior- approval for transfer of shares.
The Salient features of the Exposure Draft are as follows:-
A. Applicability: These Regulations will be applicable to Insurer transacting Life, General, Health Insurance or Reinsurance business.
B. Permissible Classes of Insurance Business:
i. Life insurance business.
ii. General insurance business.
iii. Health insurance business exclusively
iv. Reinsurance business exclusively
C. Procedure for registration:
1. No insurance company or co-operative society can be incorporated with a name that contains words ‘insurance’ or ‘assurance’ or ‘reinsurance’ without obtaining a No-objection Certificate from the Competent Authority. The certificate is valid for 6 months, after which the applicant must file an application for issuance of requisition for registration application in Form IRDAI/R1.
2. The Competent Authority, upon receipt of application for issuance of Form IRDAI/R1 and after examining the matters considered relevant to its satisfaction, shall issue the Form IRDAI/R1 which shall be valid for a period of three months within which the applicant shall submit the duly filled Form IRDAI/R1 to the Authority for its consideration. The “R1” approval shall be valid for a period of three months from the date of the said approval within which the applicant shall submit duly filled Form IRDAI/R2 for consideration of the Authority.
3. The Authority, after examining the matters considered relevant and upon its satisfaction, shall, at its discretion, issue the “R2” Approval subject to the conditions as may be specified in the said approval lett
4. After examining the matters considered relevant and upon its satisfaction, the applicant may be registered as an insurer for the appropriate business class, and the Competent Authority may grant the Certificate of Registration in Form IRDAI/R3 subject to.
i. requirement of continuous “Fit & Proper” status of promoter(s) and investor(s), adherence to a specified lock-in period, and no encumbrance on equity shares.
ii. shareholders must not create any encumbrance without written approval from the Competent Authority.
iii. the applicant must provide evidence of allotting shares and complying with R1 and R2 approvals within 15 days.
D. Commencement of Business:
1. The applicant must start insurance business within 12 months of receiving the Certificate of Registration. Failure to start within this time will invalidate the certificate. If unable to start within 12 months, the applicant may request an extension from the Competent Authority, but no extension beyond 24 months shall be allowed
E. Lock-in period:
Sr. No
Particulars
Investment in the capacity of
Lock-in Period
1
Investment at the time of or before grant of 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
4
Investment after 10 years post grant of R3
Promoter
2 years from the date of investment
Investor
1 year from the date of investment
Provided that the lock-in period shall not be applicable on the insurer(s) having its equity, share listed on the stock exchange(s) in India.
Provided further that the Competent Authority may relax the lock-in period in following circumstances:
a. To enable the insurer to list its shares on the stock exchange(s) in India.
b. Under circumstances of distressed financial position or amalgamation of the insurer or the shareholder.
F. Fit and Proper Criteria:
1. The applicants, promoters, and investors based must remain fit and proper on a continuous basis, even after a Certificate of Registration is granted.
i. If found to be not fit and proper at any stage, appropriate action may be taken by the Competent Authority.
G. Special purpose vehicle:
1. The applicant must comply with specified conditions 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.
2. The equity shares must be valued by a SEBI Registered Category-I Merchant Banker, with a report provided to the Board of Directors.
3. The SPV’s paid-up capital must be equal to or greater than the applicant’s minimum required capital.
H. 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
1. For arriving at the above numbers, preliminary expenses has to be deducted
2. Equity shares of the applicant company and the SPV shall be issued at face value
3. Infusion of funds shall commensurate with the percentage of their equity stake in the applicant and SPV
I. Investment as Promoter
1. A person can not be the promoter of more than one life, one general and one health company at a time.
2. Undertaking to be furnished to infuse capital in the insurer to meet its solvency and/or business requirements, if any, in future
J. Promoter(s) Holding
1. Minimum shareholding of all the promoter(s) of the insurer shall be collectively maintained at above fifty (50) per cent
2. Promoter(s), collectively, may dilute their stake in the insurer below fifty (50) percent but not below twenty-six (26) percent, when insurer has track record of solvency ratio above control level during 5 years immediately preceding
K. Investment as “Investor”:
1. The investment by a single “investor” shall be less than twenty-five (25) percent
2. The investment by all the “investors” collectively shall be less than fifty (50) percent
3. Number of Insurers :
i. An investor may invest in any number of insurers provided that the investment does not exceed ten percent in any insurer
ii. 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
L. Nomination of Director
1. Investor holding less than 10% shall not nominate any director on the Board of the insurer
2. Investor may nominate only one on the Board of the insurer if its investment exceeds 10 percent
3. No shareholder shall nominate any director on the board of any insurer having nominated a director on the board of any other insurer in the same class of insurance business.
M. Additional Stipulations for Investment by promoter and/or investor:
1. Investment has to be out of own funds and not from borrowed funds.
2. In any of the group entities / same management have also invested in the insurer, the limits shall apply at the group level.
N. Criteria for Investment by the Private Equity Funds:
1. The manager of the PE Fund or its Parent Fund has completed 10 years of operation;
2. The funds raised by the PE Fund including its group entity(ies) is USD 500 million or more;
3. The investible funds available with the PE Fund is not less than USD 100 million; and
4. The manager of the PE Fund has invested in the financial sector in India or the other jurisdictions.
O. Manner of calculation of equity capital held by foreign promoter and foreign investor:
1. Calculation of the holding of equity shares by one or more foreign investors and/or foreign promoters in the applicant company, shall be made as under and shall be aggregate of :-
i. the quantum of paid up capital held by the foreign Investor(s) and foreign promoter(s) including foreign venture capital investor(s), in the applicant company; and
ii. the proportion of the paid up capital held or controlled by such foreign investor(s) or foreign promoter(s) either by itself or through its subsidiary companies in the Indian promoter(s) or Indian Investor(s). However, The provision shall not be applicable to any Indian promoter or Indian investor of a listed Indian insurer where such Indian promoter and/or Indian investor are regulated by Reserve Bank of India, Securities and Exchange Board of India and/or National Housing Bank.
P. Transfer of Shares:
1. Prior approval required in case,
i. after the transfer, the paid-up equity capital holding of transferee in the shares of the insurance company is likely to exceed five percent of the paid-up equity capital of the insurance company 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.
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 and for any subsequent transfers by the transferor where the paid-up equity capital of the insurance company exceeds 1% of the paid-up equity capital, in a financial year.
Q. Provisions related to manner of obtaining prior approval, due diligence, conditions for approval, transfer of shares in case of listed insurance companies, determination of extent of transfer, Pledge of Shares of Insurance Company, reporting requirements and action for Violation or Non-Compliance have been prescribed.
R. Listing of Equity Shares of Insurer on Stock Exchange
i. An insurer may list its equity shares on regulated stock exchanges if it believes it is in the interests of policyholders, can comply with regulatory stipulations and not use listing to raise capital or transfer shares which would otherwise be in contravention to the applicable regulatory provisions
ii. The insurer must also seek approval for share transfer and fresh issuance, and file an intimation with the Authority at least 15 days before approaching the regulator.
iii. Any documents filed or communications between the insurer and the regulator regarding the proposed listing should not be considered validation by the Authority.
S. 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.
T. 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.
U. Other Forms of Capital
Provisions relating to raising of funds by insurers through issuance of ‘Other Forms of Capital’ have been specified in this Chapter
V. Miscellaneous Provisions relating to Annual fees, issue of duplicate certificate and suspension/cancellation of Certificate of Registration have been specified
Copies of the Exposure Draft is attached herewith for your ready reference.
Source category: IRDAI
Attachments
- /2024/346_Exposure_Draft_of_IRDAI_(Registration,_Capital_Structure,_Transfer_of_Shares_and_Amalgamation_of_Ind
- /2024/346_Exposure_Draft_Registration_Regulations_AnnexureA.pdf
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