Overview of IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations (2024): Critical Analysis

Overview of IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Insurers) Regulations, 2024: Critical Analysis

Indian regulator Insurance Regulatory and Development Authority of India (“IRDAI”) released a comprehensive guideline for Indian insurance companies with the aim to facilitate insurers to register, transfer shares, merge and list their shares on stock exchanges which will bolster the growth of the insurance companies. The IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024 (“2024 Regulations”) aims to repeal the seven regulations into single unified regulations to simplify the process which will lead to ease of doing business in the industry. The seven regulations including (i) the IRDAI (Registration of Indian Insurance Companies) Regulations, 2022; (ii) the IRDAI (Other Forms of Capital) Regulations, 2022; (iii) the IRDAI (Manner of Assessment of Compensation to Shareholders or Members on Amalgamation) Regulations, 2021; (iv) the IRDAI (Issuance of Capital by Indian Insurance Companies transacting other than Life Insurance business) Regulations, 2015; (v) the IRDAI (Issuance of Capital by Indian Insurance Companies transacting Life Insurance business) Regulations, 2015; (vi) the IRDA (Scheme of Amalgamation and Transfer of Life Insurance Business) Regulations, 2013; and (vii) the IRDA (Scheme of Amalgamation and Transfer of General Insurance Business) Regulations, 2011 (“Old Regulations”).

Following are the key changes introduced by the 2024 Regulations:

S. No. Provisions Old Regulations 2024 Regulations

1. 1. Lock-in Period -There is no emphasis on the non-imposition of any lock-in period on equity shares of insurers listed on accredited stock exchanges in India.

-It only discusses up to the position of the lock-in period of investment after 10 (ten) years post grant of Certificate of Registration (“R3”). -It is giving broader emphasis on the listing of equity shares by insurer companies on stock exchanges, whereby, which does not impose any lock-in period on equity shares of insurers listed on accredited stock exchanges in India and different lock-in periods exist for insurers without listed shares.

-Investments made after 15 (fifteen) years post-grant of R3 have short lock-in periods, with promoters facing 1 (one) year and investors facing none.

2. Nomination of Director Nomination of director is permissible to the investor on the board of insurers if its investment exceeds 10%. It has adopted a similar position but with the addition of new rules i.e., in case the investment of investor exceeds 10% can nominate up to 1 (one) director.

2. 3. Competent Authority IRDAI (“Authority”) is the authority for all the requisite approvals required. Elaborated the term Authority by introducing the concept of the competent authority which means chairperson or whole-time member or such committee of the whole-time members or such officer(s) of the authority, as may be determined by the chairperson.

3. 4. Conditions for Approval of Shares When granting approval, the Authority can set conditions on the transferee, including, but not limited to, the lock-in period, the infusion of additional capital in proportion to its shareholding or otherwise at periodic intervals to ensure regulatory solvency compliance and adherence to all conditions imposed by the Authority during the granting of the R3. Here, it is only emphasising the conditions, the Authority can set on the transferee which it considers appropriate.

4. 5. Investment as ‘Promoter’ Investments made in an insurer by persons serving as promoters, whether directly or indirectly, must meet the following requirements: First of all, a person is not permitted to serve as a promoter for more than 1 (one) general insurer, health insurer, life insurer or reinsurer at the same time. Second, the person has to give an undertaking, undertaking to contribute capital to the insurer in the event that it becomes essential to meet future solvency and/or business requirements. Lastly, in order to represent the insurer as a promoter, the person must fulfil all eligibility standards specified in these Regulations. It has adopted a similar position but mentions that the Competent Authority may, at its discretion, permit a person to temporarily serve as a promoter for a number of insurers engaged in the same kind of insurance activity, provided that this arrangement is included in the Scheme that the Authority accepts in accordance with Section 35 of the Insurance Act, 1934.

5. 6. Reporting Requirements Under Other Form of Capital It gives a detailed list of all the specific information that needs to be included in the report which is filed by the Insurer, including the total amount raised, subscriber information, the kind and nature of the instruments issued, interest rates and dividends, etc to the Authority within the fifteen (15) days of the allotment. The insurer issuing the instruments under these requirements shall within fifteen (15) days submit details of funds raised by the issue of these instruments from the date of allotment, along with any other information specified.

Some additional changes introduced by IRDAI:

• The Competent Authority may reduce the lock-in time in situations when insurers are in financial difficulties or are undergoing mergers or reorganizations as a result of amendments to relevant legislation. This adaptability enables prompt interventions to support restructuring, stabilize operations and protect stakeholders’ interests.
• The lock-in term does not apply to investors who own less than 1% of the insurer’s equity shares.
• Shareholders cannot nominate a director for another insurer in the same class if they have previously nominated a director for one.
• The minimum paid-up equity capital requirements for various types of insurance enterprises are as follows:

– Life Insurance Business: Rs. 100 Crore

– General Insurance Business: Rs. 100 Crore

– Health insurance business (exclusive): Rs. 100 Crore

– Reinsurance business (exclusive): Rs. 200 Crore

• In a financial year, the nominal value of shares transferred by an individual firm, group constituents of a group or body corporate under the same management exceeds 1% of the insurer’s paid-up equity capital. This also applies to subsequent transfers by the transferor if the insurer’s paid-up equity capital exceeds 1%.
• The SPV’s equity shares will be valued according to a valuation certificate provided by a SEBI Registered Category-I Merchant Banker. The certificate cannot be issued before 90 days of the share allotment. The Merchant Bankers must present a report to the Board of Directors, justifying their valuation.

Way Forward:

The 2024 Regulations, subject to a review after 3 (three) years, represent a significant step forward in streamlining regulatory processes for Indian insurance businesses. These regulations seek to improve regulatory clarity, expedite corporate operations and boost stakeholder confidence by unifying seven current regulations into a single framework. The regulations allow the Competent Authority to adjust lock-in periods in specific instances, while also establishing minimum capital requirements to preserve financial stability. The 2024 Regulations, which emphasize openness and compliance through reporting requirements, are projected to create a favourable regulatory environment for investment, innovation and long-term growth in the Indian insurance market.

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This article is wrttien by Mr Aayush Akar, Lawyer currently working in New Delhi.