The Insurance Regulatory and Development Authority of India (IRDA) has on April 15, 2015 notified the IRDA (Transfer of Equity Shares of Insurance Companies) Regulations, 2015 (“Transfer Regulations”) which have come into effect on its publication in the official gazette on April 23, 2015. Pursuant to the recent amendments raising the limit for FDI in the insurance sector from the erstwhile limit of 26% (twenty six percent) to 49% (forty nine percent), the Transfer Regulations lay down a procedure for the transfer, transmission and issue of shares of an insurance company, as defined under the Insurance Act, 1938, as amended from time to time (“Insurance Act”). Some of the salient features of the Transfer Regulations are as follows:

  1. Transfer or issue of shares of an insurance company will not be permitted where post such transfer, the transferee would hold more than 5% (five percent) of the company’s paid up share capital or transfer by any individual, firm, group, constituents of a group, or body corporate under the same management, jointly or severally, where the nominal value of the shares intended to be transferred exceeds 1% (one percent) of the company’s paid up equity capital, without the prior approval of the IRDA;
  2. Indian promoters and foreign investors can hold shares in an insurance company as approved by the IRDA and in accordance with the provisions of Indian Insurance Companies (Foreign Investment) Rules, 2015, as the case may be. While granting approval, the IRDA may impose certain conditions on the Indian promoters and the foreign investors inter alia, a minimum lockin period, proportionate infusion of additional capital at periodic intervals based on its shareholding to comply with regulatory solvency requirements and compliance with regulatory stipulations imposed for registration of Indian insurance companies, as applicable;
  3. Investors other than a foreign investor, will be permitted to hold, individually up to 10% (ten percent) of the company’s paid up share capital, and cumulative shareholding of such investors cannot exceed 25% (twenty five percent) of the paid up share capital of the company.

The Transfer Regulations also stipulate that before approving a transfer under Section 6A of the Insurance Act, IRDA shall perform requisite due diligence and assess the details of the proposed transferee provided along with the application seeking approval, inter alia its financial strength and sources of funds. In addition to the above details, the investor is required to give a declaration stating whether the shares are to be held by the investor in its own name or as a nominee, including the details of the beneficial owners and their beneficial interest.

The Transfer Regulations aim at long-term investments into the sector by stipulating conditions like lock-in periods and additional investments to be made by the investor. It is however to be seen how would the IRDA implement the conditions set out in the Transfer Regulations in case of transmission of shares, which is very different from voluntary acts of transfer and fresh issuance of shares.