The Insurance Regulatory and Development Authority of India (“IRDA”) has on December 15, 2015 issued the IRDA (Issuance of Capital by Indian Insurance Companies transacting other than Life Insurance Business) Regulations, 2015 (“IRDA Capital Regulations”). The IRDA Regulations have come into effect from December 18, 2015 and supersedes the IRDA (Issuance of Capital by General Insurance Companies) Regulations, 2013.
The salient features of the IRDA Capital Regulations have been summarised below:
- Indian Insurance Companies that have been granted certificate of registration to transact the business of general insurance or health insurance or reinsurance will have to seek prior approval of the IRDA before approaching the Securities Exchange Board of India (“SEBI”) for public issue of shares and for any subsequent issue, by whatsoever name called, under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (“ICDR Regulations”) by either any or all of the manner set out below:
- divestment of equity by one or more of the promoters or the investor(s) through a public offer for sale; or
- issue of capital;
- Any other manner of issue of capital other than as specified above or transfer of shares beyond the specified limit under the Insurance Act, 1938 shall be subject to approval of the IRDA pursuant to the IRDA (Transfer of Equity Shares of Insurance Companies) Regulations, 2015. Further, the applicant company could either issue shares as fully paid up or partly paid up shares, provided that period for payment of calls on shares cannot exceed 1 (one) year;
- The General Insurance Corporation of India and the insurance companies specified under section 10A of the General Insurance Business (Nationalization) Act, 1972 (“IB Nationalization Act”) can apply for approval of IRDA only on satisfactory compliance with the provisions of section 10B of IB Nationalization Act;
- The promoters and/ or investors of the applicant company shall abide by the lock-in period, if any, specified by the IRDA at the time of grant of Certificate of Registration;
- The applicant company shall make the application in the prescribed format. While considering the application, IRDA may take into account, inter alia, the applicant company’s overall financial position, the period for which general insurance or health business or reinsurance business has been carried on by the applicant company, its regulatory and compliance record, the purposes for raising of capital, maintenance of the prescribed regulatory solvency margin, compliance with IRDA regulations, rules and guidelines, including the corporate governance guidelines, the Indian Insurance Companies (Foreign Investment) Rules, 2015;
- Amongst various conditions that IRDA may deem fit, IRDA may prescribe certain conditions at the time of grant of approval which may relate to minimum lock-in period for the promoters and investors from the date of allotment, dilution of shareholding, mandated disclosures in the offer documents, amendments to the charter documents of the applicant company, transfer restrictions;
- Approval of the IRDA shall not in any manner be deemed to be or serve as a validation of the representations by the applicant company in any offer document and the same has to be explicitly disclosed in the offer document;
- The validity of the approval of the IRDA for issue of capital shall be 1 (one) year from the date of the approval letter, within which the applicant company will have to file the Draft Red Herring Prospectus (DRHP) with SEBI under the ICDR Regulations. IRDA may, on written request from the applicant company, extend the validity by a further period of 6 (six) months.
The IRDA Capital Regulations have been notified after factoring in comments from industry players on allowing Indian insurance companies not involved in life insurance business giving access to public markets to raise funds through a public issue in accordance with ICDR Regulations. IRDA would continue to evaluate various factors while granting such approval, including if such issuance would be detrimental to the interests of policyholders or the insurance business in the country.