The board of the Insurance Regulatory and Development Authority of India (IRDAI) on Friday approved a host of proposals, involving private equity investment, solvency norms, dilution of equity and fund raising, aimed at promoting ease of doing business and simplifying the process of setting up an insurance company. The regulator has allowed the promoters to dilute their stake up to 26 per cent, subject to condition that the insurer has satisfactory solvency record for the preceding five years and is a listed entity.
After the board meeting in Hyderabad, IRDAI said investment through special purpose vehicles (SPVs) has been made optional for private equity (PE) funds enabling them to directly invest in insurance companies, providing more flexibility. The IRDAI move is expected to bring more PE funds into the insurance sector. Further, subsidiary companies will be allowed to be promoters of insurance companies, subject to certain conditions. Investment up to 25 per cent of the paid-up capital by a single investor (50 per cent for all investors collectively) will now be treated as ‘investor’ and investments over and above that will only be treated as promoter. Earlier, the threshold was 10 per cent for individual investors and 25 per cent for all investors collectively. The changes in solvency norms will release around Rs 3,460 crore for insurers. It has also set indicative criteria for determination of ‘fit and proper’ status of investors and promoters.
In order to facilitate ease of raising other forms of capital through subordinated debt or preference shares, it has dispensed with the requirement of prior approval from IRDAI.
The amendments have also enhanced the limits for raising such capital. This will enable companies to raise the required capital in a timely manner.
IRDAI has increased the period for considering State and Central Government premium dues for calculation of solvency position in the case of crop insurance from 180 days to 365 days. The solvency factors related to crop insurance are also reduced to 0.50 from 0.70 which will release the capital requirements for insurers by around Rs. 1,460 crore, it said.
It has reduced the solvency norms for unit linked business (without guarantees) to 0.60 per cent from 0.80 per cent and for PMJJBY to 0.05 per cent from 0.10 per cent. This will provide a relaxation in capital requirements by around Rs. 2,000 crore.
According to the regulator, a corporate agent (CA) can tie up with 9 insurers as against three insurers earlier and insurance marketing firms (IMF) can tie up with 6 insurers (earlier 2 insurers) in each line of business of life, general and health for distribution of their insurance products. The area of operation of the IMF has also been expanded to cover the entire state in which they are registered.
On the IRDAI proposals, Bhargav Dasgupta, MD & CEO of ICICI Lombard General Insurance Company, said, “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. The regulator has addressed a number of long pending issues of the industry in one stroke.”
“The vision of the regulator to ensure Insurance for all is truly inspirational and these reforms will go a long way in achieving that objective,” Dasgupta said.
Nod for Go Digit IPO, Max Life merger
IRDAI on Friday said it has given final approval to Go Digit General Insurance Company for listing on the stock exchanges. It also gave in-principle approval to India First Life Insurance Company for listing and approved the merger of Exide Life Insurance Company with HDFC Life Insurance Company.
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