How PE Funds May Be Allowed To Be Promoters Of New Insurance Firms


The Insurance Regulatory and Development Authority of India has proposed to allow private equity funding in insurance companies, including life, general, health and reinsurance.

It also provided clarity on ‘fit and proper’ criteria for promoters, the limits of investment and lock-in period while granting new registrations to insurers.

According to the draft exposure published on Oct. 13, private equity funds may invest in insurance companies in the capacity of a promoter or an investor, subject to the following conditions:

  • The fund or its parent has completed 10 years of operation.

  • It must have invested in the financial sector or other jurisdictions in India in the past.

  • It should have raised private equity funds of at least $500 million (around Rs 4,100 crore).

  • The firm has investible funds available of $100 million (Rs 820 crore) or more.

The regulator also laid out certain criteria that investors or promoters must fulfill during and after registration in the interest of policyholders and the public, as it could impact the management, governance structure and capital structure of the insurer.

To be qualified as an ‘investor’, the investment must be less than 25% of the paid-up capital of the insurer along with certain limits on the number of insurance companies that an investor can invest in.

To be a ‘promoter’, the person shall not be a promoter of more than one life insurer, one general insurer, one health insurer and one reinsurer. They shall submit an undertaking to infuse capital in the insurer to meet its solvency/business requirements, if required, in the future.

Minimum shareholding of the promoter should be maintained at above 50% of the paid capital. It can be diluted below 50% but never below 26% if certain solvency conditions are met and the insurer is listed on the exchange.

IRDAI has also proposed lock-in periods for equity shares of the company on the date of granting the certificate of registration to a new insurer.

For any investment done by the promoter and investor before registration, the lock-in period for equity is five years.

In case further investment results in a change in the shareholding pattern, the following lock-in periods are proposed:

  • For investment done during five years from date of registration, equity shall be locked in for five years or eight years from the date of registration, whichever is earlier.

  • For investments done after year five and before year 10 of registration, a promoter will be required to hold equity for three years or 12 years from registration, whichever is earlier. The investor is required to hold for either two years or 11 years from the registration date, whichever is sooner.

  • For any investment done after 10 years of registration, promoters are required to hold for two years while investors are locked in for a year.

The draft also laid down some amendments and additional conditions for calculation of equity shares held by foreign investors/promoters, residency requirements of its directors and key management personnel.

If foreign investment exceeds 49%, it has proposed conditions associating dividend payment with solvency margin of the insurer and requirement of independent directors.

The recent draft has also hiked the annual fees to be paid by insurers to maintain their licence.

The earlier clause stated that the annual fee shall be higher of Rs 5 lakh, or 1/20th of 1% of total gross premium written direct by an insurer in India, during the financial year preceding the year in which the annual fee is required to be paid, or Rs 10 crore, whichever is less. The proposed clause has replaced the amount from Rs 5 lakh to Rs 10 lakh.

Cost of issuing a duplicate registration certificate is proposed to increase from Rs 5,000 to Rs 1 lakh.

The regulator is also proposing to tighten norms around suspension of insurance license.

The IRDAI has invited comments on the draft by Nov. 3.


Source link

What is your reaction?

In Love
Not Sure

You may also like

Comments are closed.

More in:Business