INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA
NOTIFICATION
Hyderabad, 20th April, 2021
Insurance Regulatory and Development Authority of India (Manner of Assessment of Compensation to Shareholders or Members on Amalgamation) Regulations, 2021
F. No. IRDAI/Reg/4/176/2021.— In exercise of the powers conferred by sub section(4A) of section 37A read with clause (jb) of sub section (2) of section 114A of the Insurance Act, 1938 (4 of 1938) and sections 14 and 26 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), the Authority in consultation with the Insurance Advisory Committee, hereby makes the following regulations, namely: –
Objective: To provide 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.
Chapter – I
1. Short title and commencement
(1) These regulations may be called the Insurance Regulatory and Development Authority of India (Manner of Assessment of Compensation to Shareholders or Members on Amalgamation) Regulations, 2021.
(2) These Regulations shall come into force on the date of their publication in the Official Gazette.
2. (1) Definitions. –
In these regulations, unless the context otherwise requires, –
(i) “Act” means the Insurance Act, 1938 (4 of 1938);
(ii) “Assets” includes all assets including the properties of the original insurer which shall, in terms of the Scheme, be taken over by the transferee insurer;
(iii) “Authority” means the Insurance Regulatory and Development Authority of India established under subsection (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999);
(iv) “Appointed Date” means 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;
(v) “Compensation” means the amount assessed by the Authority in accordance with these regulations and payable either in cash or in kind to 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;
(vi) “Liabilities” 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;
(vii) “Original insurer” means the insurer which is amalgamated with the transferee insurer as per the scheme of amalgamation;
(viii) “Residual Value of Assets” 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 III;
(ix) “Scheme of amalgamation” means a Scheme prepared by the Authority and sanctioned and notified by the Central Government under the provisions of Section 37A of the Act;
(x) “Shareholders or members” mean the shareholders or members of the original insurer immediately before the appointed date as may be specified under the Scheme of amalgamation;
(xi) “Transferee Insurer” means the insurer with whom the original insurer is amalgamated in accordance with the scheme of amalgamation.
(2) All words and expressions used herein and not defined in these regulations but defined in the Insurance Act, 1938 (4 of 1938), or in the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999) or regulations made therein shall have the same meanings respectively assigned to them in those Acts or Rules and Regulations made thereunder.
Chapter – II
3. Every person who, immediately before the appointed date, is registered as a shareholder or a member of the original insurer and the interest in, or rights of such shareholder or member against the transferee insurer are less than the interest in, or rights against the original insurer, shall be eligible for compensation in accordance with these regulations.
Provided that the eligible shareholders or members shall be considered for payment of such compensation only where the residual value of the assets is positive.
4. The compensation assessed in accordance with the provisions of these regulations shall be paid either in cash or in kind or partially in cash and partially in kind.
5. The Authority shall assess the compensation payable to the shareholders or members of the original insurer, whose interest in, or rights against the transferee insurer are less than their interest in or rights against the original insurer, on the basis of the residual value of the assets as arrived at in accordance with regulation 6.
Chapter–III
Part I: Methodology for assessment of Compensation to Shareholders or Members
6. The residual value shall be apportioned in the following order of preference:
(1) Subordinated debt under the head “other forms of capital”;
(2) Preference share capital under the head “other forms of capital”;
(3) Shareholders or members of the original insurer.
Explanation-
(i) Order of preference shall be applicable only where the liabilities under clause (1) and (2) have not been taken over by the transferee insurer;
(ii) it is further clarified that in case of clause (1) and (2) above, at each stage of the distribution of proceeds in respect of a class of recipients that rank equally, each of the class will either be paid in full, or in equal proportion within the same class of recipients, if the proceeds are insufficient to meet the obligations.
7. The remaining residual value arrived at in accordance with regulation 6 shall be distributed to every eligible shareholder or member in such proportion as the amount of paid-up capital of the shares held by such shareholder or member bears to the total paid up capital of the original insurer.
Part II-Assets
8. For the purpose of computation of residual value of assets by the Authority, “assets” shall be the sum total of the following: –
1) the amount of cash in hand and the amount of balances with any bank immediately before the appointed date, whether in deposit or current account, and money at call and short notice, balance held outside India being converted at the market rate of exchange;
2) the market value, as on the day immediately before the appointed date, of any securities, shares, debentures, bonds and other investments, held by the original insurer concerned;
Explanation. – For the purposes of this clause, –
(i) where the market value of any security, share, debenture, bond or other investment is not considered reasonable by reason of its having been affected by abnormal factors, such investment may be valued on the basis of its average market value over any reasonable period;
(ii) where the market value of any security, share, debenture, bond or other investment is not ascertainable, only such value, if any, shall be taken into account as is considered reasonable having regard to the financial position of the issuing concern, the dividend paid by it during the preceding five years and other relevant factors.
3) the amount of advances (including loans), other debts, whether secured or unsecured, to the extent to which they are reasonably considered recoverable;
4) the value of any land or buildings;
5) the total amount of premia paid, in respect of all leasehold properties, reduced in the case of each such premium by an amount which bears to such premium the same proportion as the expired term of the lease in respect of which such premium shall have been paid bears to the total term of the lease;
6) the written down value as per books, or the realisable value, as may be considered reasonable, of all furniture, fixtures and fittings;
7) the market or realisable value, as may be appropriate, of the other assets appearing in the books of the original insurer.
Part III-Liabilities
9. For the purpose of computation of residual value of assets by the Authority, “liabilities” shall be the total value of (a) all liabilities existing as on the appointed date, and (b) all contingent liabilities which the transferee insurer may reasonably be expected to discharge on or after the appointed date under the scheme of amalgamation.
Provided that (i) policyholders’ liabilities in case of a life insurer; and (ii) IBNR and IBNER liabilities in case of a general insurer shall be taken on the basis of the valuation determined by an independent actuary.
Chapter – IV
Miscellaneous
10. Power to remove difficulties: In order to remove any doubts or difficulties that may arise in the application or interpretation of any of the provisions of these regulations, the Chairperson of the Authority may issue appropriate clarifications or guidelines as deemed necessary.
Dr. SUBHASH C. KHUNTIA, Chairman
[ADVT.-III/4/Exty./45/2021-22]
