Insurance regulator IRDA on Thursday came out with guidelines (Given Below) allowing life insurance companies, which have been in business for over 10 years, to raise funds from the public through IPOs. The Insurance Regulatory and Development Authority (IRDA), however, will decide the size of the public issue, it said in a notification. As per the guidelines, promoters of the insurance companies will also be allowed to offload their stake in the company. IRDA would prescribe “the extent to which promoters shall dilute their respective holding, the maximum subscription which could be allotted to any foreign investors”, said the IRDA (Issuance of Capital by Life Insurance Companies) Regulations, 2011. IRDA, it added, would prescribe a lock-in period for the promoters to prevent them from exiting the company.

The regulations stipulate that no life insurance company should approach market regulator SEBI for IPO without seeking prior approval of the IRDA.

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IRDA (issuance of Capital by Life Insurance Companies) Regulations, 2011

Notification F. No. IRDA/Reg./2/56/2011, dated 14-11-2011

In exercise of powers conferred under section 14 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), read with sections 6AA and 114A of the Insurance Act, 1938, the Authority, in consultation with the Insurance Advisory Committee, hereby makes the following regulations, namely:-

1. Short title and commencement

i.  These Regulations shall be called the IRDA (Issuance of Capital by Life Insurance Companies) Regulations, 2011

ii. They shall come into force on the date of their publication in the Official Gazette.

Definitions

2. In these Regulations, unless the context otherwise requires:

a.  ‘Act’ means the Insurance Act, 1938 (4 of 1938);

b. ‘Applicant Company’ means a Life Insurance Company coming within the definition of Indian Insurance Company.

c.  ‘Authority’ means Insurance Regulatory and Development Authority established under Section 3 of the Insurance Regulatory and Development Authority Act, 1999;

d.  ‘Application’ means application submitted to the Authority under the IRDA (Issuance of Capital by Life Insurance Companies) Regulations, 2011

e. ‘Corporate Governance Guidelines’ means the guidelines issued by the Authority vide its Circular no. IRDA/F&A/CIR/025/2009-10, dated 5th August, 2009 as amended and modified from time to time.

f. ‘Date of commencement of business’ means the date of grant of certificate of registration under IRDA (Registration of Indian Insurance Companies) Regulations, 2000.

g. ‘Excess Shareholding’ means shareholding over and above the limits of shareholding prescribed under Section 6AA of the Insurance Act.

h. ‘Insurance company’ means the ‘Indian Insurance Company’ as defined in Section 2(7)A of the Insurance Act, 1938;

i. ‘SEBI’ means the Securities and Exchange Board of India

j. ‘ICDR Regulations’ means the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 as amended and modified from time to time.

k. ‘Key Managerial Personnel’ shall include but not limited to the key persons as defined in IRDA (Registration of Indian Insurance Companies) Regulations, 2000.

l.  ‘Offer Document’ means a document as defined under the ICDR Regulations.

m. ‘Promoter’ of an applicant company means

‘Any person or persons who holds equity shares in the insurance company at the time of grant of registration (R3) by Authority, and includes any person or persons who may have acquired equity shares in the company with the prior approval of the Authority under the provisions of section 6A (including Regulations, Circulars and clarifications framed there under) of the Insurance Act, 1938’

Provided that an existing or an ex-director or ex-officer of the issuer who has acquired a stake under any form of Employee Stock Option Scheme (ESOP) shall not be deemed as a promoter:

Provided further, that for the purpose of filing of the offer document with SEBI, the definition of ‘promoter’ under SEBI (ICDR) Regulations, 2009 shall apply.

n. ‘Proposal’ means the application filed by the applicant company with the Authority under Form ‘A’ attached to these Regulations for obtaining formal approval of the Authority.

All words and expressions used herein and not defined in these Regulations but defined in the Insurance Act, 1938 (4 of 1938), or the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), shall have the same meaning respectively assigned to them in those Acts.

Prior Written Approval by the Authority

3. No life insurance company shall approach the SEBI for public issue of shares and for any subsequent issue, by whatsoever name called, under the ICDR Regulations without the specific previous written approval of the Authority accorded in the manner prescribed herein.

Manner and Procedure

4. These Regulations shall be applicable to divestment of the excess shareholding by the promoters of the applicant company as prescribed in Section 6AA of the Act, 1938 and/or to otherwise raise funds under the ICDR Regulations, inter alia through any of the following options:

a. Issue of capital under ICDR Regulations; and

b. Divestment of equity by one or more of the promoters through a public offer for sale under the ICDR Regulations.

The application for the approval of the Authority shall be filed in Form ‘A’ forming part of these Regulations.

Provided that no issuance and allotment of capital by an insurance company shall be in any form other than as fully paid up equity shares.

Further provided that any issue of capital other than as specified at (a) and (b) above, including any transfer of shares beyond the specified limits as laid down under section 6A(4)(b)(ii)/(iii) of the Insurance Act, 1938 shall require the specific prior approval of the Authority. Such approvals shall be governed by the stipulations laid down by the Authority.

5. Approval of the Authority

(i) An applicant company proposing to raise share capital through a public issue in terms of these regulations may do so only on completion of 10 years from the date of commencement of business by the applicant company or such other period as may be prescribed by the Central Government.

(ii) The approval granted by the Authority shall have a validity period of one year from the date of issue of the approval letter, within which the applicant company shall file the Draft Red Herring Prospectus (DRHP) with SEBI under the ICDR Regulations.

(iii) Any approval by the Authority in terms of the Regulations herein, shall not in any manner be deemed to or serve as a validation of the representations by the applicant company in any offer document, which fact shall be disclosed in bold letters in any offer document.

(iv) The Authority reserves the right not to accord its approval if, in its opinion, (i) the applicant company is not compliant with the regulatory framework; or (ii) where it may be detrimental to the interests of policyholders; or (iii) it may not be in the interest of the insurance business in the country.

Criteria for consideration for approval

6. The Authority shall generally consider the applicant company’s overall financial position, its regulatory record, the proposal for issue/offer of capital; the capital structure post issue/offer of capital; and the purposes to which the share capital proposed to be raised will be applied. In particular, the Authority shall consider the following parameters amongst others:

(i)  the period for which the applicant has been in the life insurance business;

(ii)  the history of compliance with the regulatory requirements by the applicant company;

(iii) the maintenance of the prescribed regulatory solvency margin as at the end of the preceding six quarters commencing from the quarter immediately prior to the date of filing the application;

(iv) compliance with the disclosure requirements mandated under IRDA Circular No. IRDA/F&I/CIR/F&A/012/01/2010, dated 28th January, 2010 as amended and modified from time to time;

(v) compliance with the Corporate Governance Guidelines;

(vi) its record of policyholder protection; and

(vii) the Embedded Value of the applicant company. Such Embedded Value Report shall be prepared by an independent Actuarial Expert and peer reviewed by another independent Actuary and shall be prepared in the manner prescribed by the Actuarial Practice Standard issued by the Institute of Actuaries of India.

The Authority generally expects the Embedded Value to be two times  the paid up equity capital (the paid up capital shall be inclusive of the share premium).

7. Conditions for approval

While according its approval, the Authority may prescribe:

 (i)  the extent to which the promoters shall dilute their respective shareholding;

(ii)  the maximum subscription which could be allotted to any class of foreign investors;

(iii) minimum lock-in period for the promoters from the date of allotment of shares. The lock-in period shall be without prejudice to the requirements which may be in place under the ICDR Regulations; and

(iv) the disclosures in the Prospectus/Offer document, in addition to such disclosures as may be prescribed by SEBI, which may include the disclosures as indicated at Annexure-1 to these Regulations.

8. Timelines for approval by the Authority:

The Authority shall process and grant approval on the application as expeditiously as possible, and the applicant company shall ensure prompt response to the queries and requests for information from the Authority for processing the application.

FORM A

The Chairman

Insurance Regulatory and Development Authority

Parishram Bhavan

3rd Floor,

Basheer Bagh

Hyderabad – 500 004

Dear Sir,

Re.: Application for approval in terms of IRDA (Issuance of Capital by Life Insurance Companies) Regulations, 2011

In terms of the IRDA (Issuance of Capital by Life Insurance Companies) Regulations, 2011, M/s …………………………(Registration No ………….. dated ……………) which has completed ……………. years of operations, hereby applies to the Authority for issue of capital under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (ICDR Regulations).

2. The details of the various eligibility parameters referred to under Regulation 6 of the Regulations are placed at Annexe along with the requisite enclosures as listed below :

(i)

(ii)

(iii)

The Report on Embedded Value calculation prepared by an independent actuarial expert and peer reviewed by another actuary in compliance with the prescriptions laid by the Actuarial Practice Standard issued by the Institute of Actuaries of India is annexed to the Application.

On receipt of the approval from the Authority, the (insurance company) …………. shall file an offer document with the Securities and Exchange Board of India (SEBI) under the ICDR Regulations within a period of one year and shall ensure compliance with the requirements under the said Regulations.

Yours faithfully

Place:

Date :

(Signature of the Chief Executive Officer) Designation

(Signature of the Chairman of the Board) Designation

Annexe to the Application

1. Name of the applicant Company:

2. No. and Date of Registration:

3. Renewal certificate issued on:

4. Number of years from the date of commencement of business:

5. Status of Compliance with the expenses of management requirements under the Insurance Act, 1938 and the Rules framed thereunder for the last five years:

Sl. No. Financial year (last first)  Allowable Expenditure (Rs. in crore) Actual Expenditure (Rs. in crore) Compliance status
1.
2.
3.
4.
5.

6. Details of the net profit, paid up capital and networth of the insurer for the last five years:

Sl. No. Financial Year (last first) Net Profit/Loss (Rs. in crore) Paid up capital (Rs. in crore) Networth (Rs. in crore)
1.
2.
3.
4.
5.

7. Solvency Position for the quarter ended (for the last six quarters):

SI. No. Quarter ended (last first) Solvency Position
1.
2.
3.
4.
5.
6.

8. Confirmation of Compliance with the Disclosure Requirements:

M/s …………. hereby confirms that it is compliant with the disclosure requirements as mandated in the IRDA Circular No. IRDA/F&I/CIR/F&A/012/01/2010, dated 28th January, 2010 as amended and modified from time to time.

(Details of deviations, if any, should be brought out).

9. Confirmation of Compliance with the Corporate Governance Guidelines:

M/s ……………..hereby confirms that it is compliant with the Corporate Governance Guidelines issued by IRDA vide Circular no. IRDA/F&A/CIR/025/2009-10, dated 5th August, 2009. (Details of deviations, if any, should be brought out).

10. Details of regulatory action initiated by IRDA against the insurer for the last five years are as under:

11. Details of company’s record of Policyholder Protection and the pendency of the policyholder complaints for the last five years:

GRIEVANCE DISPOSAL
Sl. No. Particulars Opening Balance* Additions Fully Accepted Partially Accepted Re jected Complaints Pending
1 Complaints made by customers
(a) Sales Related
(b) New Business Related
(c) Policy Servicing Related
(d) Claims Servicing Related
(e) Others
Total Number
2 Duration wise Pending Status Complaints made by customers Complaints made by Intermediaries Total
(a)  Less than 15 days
(b) Greater than 15 days
Total Number

*Opening balance should tally with the closing balance of the previous financial year.

12. The Embedded value of the insurance company as arrived at by the independent actuarial expert is ………………

The Embedded Value Report has been prepared by …………………

The Embedded Value has been peer reviewed by………………

13. The details of the pre and post issue shareholding pattern are as under:

Existing shareholding pattern Proposed Offer for Sale/issue Proposed shareholding pattern
Sl. No. Name Status (Indian/ Foreign) No. of shares held Per cent held No. of shares Per cent Status (Indian/ Foreign) No. of shares Per cent
1.
2.
….
….
….
…. Issue under ICDR Regulations

14. The requisite extracts of the Board meeting held on………………duly certified by the Chief Executive Officer approving the issuance of capital/offer for sale as proposed by the applicant company are enclosed.

It is hereby confirmed that the information furnished in Form A along with attachments therewith is correct and complete to the best of my knowledge and belief and nothing has been concealed or suppressed.

Yours faithfully

Place:

Date:

(Signature of the Chief Executive Officer) Designation

(Signature of the Chairman of the Board) Designation

Annexure 1

Disclosure Requirements for Applicant Life Insurance Company

The Securities and Exchange Board of India (SEBI) has laid down the framework for issue of capital and disclosure requirements in the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (ICDR Regulations). Part ‘A’ of Schedule VIII of the ICDR Regulations lays down the disclosure requirements in the Draft Red Herring Prospectus, Red Herring Prospectus, Shelf Prospectus and Prospectus.

An applicant company seeking to issue capital/ make on Offer for Sale under these Regulations shall make the following disclosures in the offer document. These disclosures shall be in addition to the prescriptions laid down by SEBI in the ICDR Regulations and shall not be seen in derogation of the requirements prescribed by SEBI:

a.  Risk factors specific to the insurance companies

b.  Overview of the insurance industry

c.  Disclosure of Financial Statements

d.  Glossary of terms used in the insurance sector

e.  Particulars of the Issue

f.  Particulars about the Issuer

g. Legal and other Information.

The details of disclosures are as indicated below:

a.   Risk factors specific to the applicant company

The Offer Document shall list out the risk factors specific to the insurance sector, to be broadly segregated into the following categories:

1. Insurance Risk: Risk arising because of inaccurate estimation of the best estimate or because of random fluctuations in the frequency and size of the claims and other cash flows.

2. Market Risk: Risk arising out of variations in the level or volatility of the market prices of assets, liabilities and financial instruments due to external market and economic factors.

3. Credit Risk: Risk of default of a counterparty or obligor, including the risk of default to risk mitigating contracts like reinsurance and financial derivatives.

4. Liquidity Risk: The risk that the business will encounter difficulty in realizing assets or otherwise raising funds to meet commitments.

5. Operational Risk: The risk of loss, resulting from inadequate or failed internal processes, people and systems, or from external events.

At the minimum, the associated risks shall cover the illustrative list as prescribed by the Authority from time to time.

b. Overview of the insurance industry

The overview of the insurance industry shall briefly cover the background of the insurance industry, the global and domestic insurance environment, industry outlook, analysis of trends, Investment of funds by the sector, FDI in Insurance Sector, Intermediaries, changes in Insurance Legislation, and compliance status with the applicable Corporate Governance Guidelines furnishing particulars on the following aspects:

1. Introduction

2. Background about Insurance Industry

2.1. Overview of the Insurance Industry

2.2. Insurance Regulatory and Development Authority

3. Global Insurance Environment- A brief on global and domestic scenario covering Insurance Penetration, Density, growth of Industry, etc.

3.1. Global Insurance Environment

3.2. Domestic Market Overview

4. Industry Outlook – Life Insurance -Total Premium Underwritten

4.1. Market Share (% share)

4.2. Growth of Business

5. Analysis of Trends – Life Insurance

5.1. Enlarged Coverage

5.2 Introduction of New Products

6. Investment of Funds by the Insurance Industry

6.1. Investment Pattern

7. FDI in Insurance Sector

8. Intermediaries

8.1. Commission Structure

8.2. Life Insurance Industry

9. Corporate Governance Guidelines for Insurance Companies

10. Conclusion

c. Disclosure of Financial Statements

Disclosures specific to the insurance industry would broadly cover the following aspects:

1. Presentation of the financial statements: The presentation of financial statements shall be made for the period as specified in the ICDR Regulations as per the formats prescribed by the Authority from time to time.

2. Additional disclosures shall be made to the financial statements:

i. Gross premium- along with Geographic segmentation

ii. Cross selling

iii. Distribution network

iv. Persistency

iv. Operating expense ratio

vi. Investment yield

vii. Investment of above 5% of total Funds in each sector through equity and bonds

viii. Reinsurance

ix. Interest rate sensitivity

x. Liability for future policy benefits and policyholders account balances.

xi. Manner of arriving at unrealized gain/losses

xii. Solvency Coverage ratio

xiii.Certification by the Appointed Actuary confirming the adequacy of Mathematical Reserves to meet the insurance company’s future commitments under the contracts and the policyholders’ reasonable expectations;

xiv. Embedded Value as per the Actuarial Practice Standard issued by the Institute of Actuaries of India.

xv. Accounting and other ratios: The ratios with specific reference to the insurance industry as prescribed by the Authority from time to time shall be disclosed.

3. Legal and Other Information: Compliance with the regulatory requirements laid down by the Authority under the Insurance Act, 1938, IRDA Act, 1999 and the regulations framed thereunder.

4. Details of company’s record of Policyholder Protection and the pendency of the policyholder complaints for the last five years, including but not limited to grievance redressal and ageing of claims.

d. Definitions and Abbreviations:

At the minimum, the illustrative glossary of terms as prescribed by the Authority from time to time shall be included in the Offer Document giving details of the Issuer and industry related terms.

e. Particulars of the Issue:

The following disclosures shall be made about the objects of the Issue:

a. to augment the solvency requirement;

b. general corporate purposes; and/or

c. any other purpose which has the specific approval of the Authority.

 f. Particulars about the Issuer:

The following additional disclosures shall be made about the insurance company:

 1. Corporate Governance:

  • Disclosure to the effect that the insurer has complied with the requirements of Corporate Governance as laid down by the Authority in addition to those contained in the Listing Agreement.
  • Details of all Committees set up by the issuer, including the names of committee members and a summary of the terms of reference under which the respective committee operates.

2. Key Managerial Personnel

3. Promoters

g. Legal and Other Information

Disclaimer clause:

The declaration indicating that Insurance Regulatory and Development Authority (“IRDA”) does not undertake any responsibility for the financial soundness of the insurance company or for the correctness of any of the statements made or opinion expressed in this connection.

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