Shubhangi Pathak and Aashna Soman
Veritas Legal
The Insurance Regulatory and Development Authority of India (“IRDAI”) has been instrumental in shaping the regulatory framework governing the Indian insurance sector. Recently, by way of a press release dated 24 January 2024, the IRDAI stated that an initiative will be undertaken to overhaul the existing regulatory framework governing Indian insurers. The aim of the regulator is to comprehensively review and consolidate regulations, ensuring a more coherent and efficient regulatory framework for the insurance sector.
In view of the above-mentioned objective, the IRDAI, inter alia, issued the IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Insurers) Regulations, 2024 (“Consolidated Registration Regulations”) which have repealed a number of regulations on the subject (“Erstwhile Regulations”).
Some of the key changes introduced by the Consolidated Registration Regulations are:
· Lock-in Period Relaxation: The Consolidated Registration Regulations now specifically set out that in case of an investment made 15 years after grant of the certificate of registration to the insurer, the lock-in period shall be 1 year for a promoter and shall be nil for an investor. Further, the Consolidated Registration Regulations provide that the ‘competent authority’(i.e., the chairperson or such whole-time member or such committee of the whole-time members or such officer(s) of the IRDAI, as may be determined by the chairperson) may relax the lock-in requirement in certain specified circumstances.
Further, the lock-in period shall not be applicable to: (a) equity shares allotted to employees or directors of the insurer under any employee benefit scheme; and (b) to investors holding less than 1% of the equity shares of the insurer.
· Pricing of shares: The Consolidated Registration Regulations provide that until an insurance company commences operations, its shares must be issued at face value. It has also been specified that the infusion of funds in the applicant entity seeking the certificate of registration from the IRDAI and the special purpose vehicle (if any), by its shareholders, shall be commensurate with the percentage of their equity stake in the applicant entity and the special purpose vehicle. Post commencement of business, the insurer, or the special purpose vehicle (as the case may be) may issue equity shares at a premium.
· Right to nominate directors: The following specific criteria has been set out in the Consolidated Registration Regulations for an investor to nominate a director on the Board of Directors of an insurer.
o The investor shall not nominate any director if the investment by such investor in the insurer does not exceed 10% of the paid-up capital of the insurer and the investor may nominate only one director if its investment exceeds 10% of the paid-up capital.
o No shareholder shall nominate any director on the Board of Directors of any insurer if it has already nominated a director for another insurer engaged in the same class of insurance business.
Listing of equity shares of an insurer on a stock exchange: The Erstwhile Regulations governing the listing of equity shares of an insurer on a stock exchange required an insurance company to obtain the prior written approval of the IRDAI for such listing of shares. However, the Consolidated Registration Regulations appear to have relaxed this requirement by providing that an insurer may approach the appropriate financial sector regulator for listing of its equity shares, upon fulfilment of certain specified conditions.
Some of the key changes introduced by the Consolidated Registration Regulations are likely to facilitate the growth and expansion of the Indian insurance industry, such as the delegation of power by the IRDAI to the ‘competent authority’ for certain specified purposes.
However, certain other requirements, such as restrictions on pricing of shares being issued by an applicant seeking to obtain a certificate of registration to operate as an insurer may have an impact on the funds available to such an entity at the time of commencing business operations and may impact commercial discussions between stakeholders. Similarly, the restrictions on investors nominating directors on the Board of Directors of insurers may also impact commercial discussions.Overall, the initiative of revisiting and reviewing the regulatory framework will likely be welcome by the stakeholders.
