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Irdai approves amendments, simplifies rules to set up insurance firms

Mumbai, November 25, 2022

Under the current guidelines, to invest in insurance companies as "promoter", a PE fund can do so only through an SPV

The Insurance Regulatory and Development Authority of India (Irdai) on Friday approved amendments to rules on registering insurance companies and investing in them.

Private equity (PE) funds can now directly put in money in insurance companies, and investment by them through special purpose vehicles (SPVs) has been made optional, thus providing flexibility.

This has been a long-standing demand of PE players looking to invest in insurance.

Under the current guidelines, to invest in insurance companies as “promoter”, a PE fund can do so only through an SPV.

But if the PE fund is investing in an insurance company as “investor”, it can do so directly or through an SPV.

Further, the regulator has said a single investor taking 25 per cent in an insurance company will be classified as “investor” and any investment more than that will make it a “promoter”.

Under the current guidelines, the threshold for being “promoter” as a single investor is more than 10 per cent.

“The amendments are aimed at promoting ease of doing business and (simplifying) the process of setting up an insurance company in India,” the regulator said.

Among other reforms, Irdai has introduced provisions by which promoters will be allowed to dilute their stake down to 26 per cent on condition that the insurer has a satisfactory solvency record for the preceding five years and is a listed entity.

The earlier norms required promoters to hold on to a 50 per cent stake if it was more than that.

The regulator has said the lock-in period of investment for investors and promoters will be stipulated on the basis of the age of the insurer.

“Like any other promoter, PE funds will be subject to lock-in period norms based on age of the insurer,” Debasish Panda, chairman, Irdai, told Business Standard.

The regulator has increased the number of tie-ups corporate agents and insurance-marketing firms can have. Corporate agents can now tie up with nine insurers each in the general, life, and health insurance sectors. Currently, it is three.

Insurance-marketing firms can tie up with six insurers in each line of business of life, general and health for distributing their insurance products.

The area of operation of Insurance-marketing firms has been expanded to cover the entire state in which they are registered.

“These are path-breaking reforms that will improve ease of doing business, free up distribution models, encourage customer-centric innovations and make the sector attractive for investment,” said Bhargav Dasgupta, managing director (MD) and chief executive officer (CEO), ICICI Lombard General Insurance.

Ritesh Kumar, MD and CEO, HDFC ERGO General Insurance, said: “We believe that registration of Indian insurance companies and other forms of capital proposals should lead to improved access to capital, which will drive insurance penetration.”

The regulator has relaxed solvency norms for general and life insurers. This step will free up substantial capital for insurance companies.

It has done away with the necessity of approval by the regulator for raising funds through subordinate debt and/or preference shares.

[The Business Standard]

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