In this article, we have examined the changes introduced by the IRDAI pursuant to the IRDAI (Registration of Indian Insurance Companies) (Seventh Amendment) Regulations, 2016 issued on April 1, 2016. Significantly, the IRDAI has clarified the manner of computation of foreign investment and introduced a provision disqualifying promotors and investors that have exited an insurance joint venture in the last two financial years from applying for a registration of a new insurance company.

When the insurance sector was opened up to 49% in terms of the Amendment Act, it was felt that there were several changes required to the existing foreign investment and insurance laws to reflect the changed position.

Accordingly, the RBI’s regulatory framework and the FDI policy was  duly  amended  to  reflect  the  new  cap  and  there  were expectations from the IRDAI since last year to amend the IRDA (Registration of Indian Insurance  Companies)  Regulations  2000 (“Registration Regulations”) as it continued to state the earlier limit on foreign investment. At the same time, the central government’s Indian Insurance Companies (Foreign Investment) Rules 2015 (“Foreign Investment Rules”) issued on February 19, 2015 permitted insurers and intermediaries to increase their stake to 49% subject to complying with certain conditions.

The Registration  Regulations  continue  to  govern  the  manner  of  registration  of  insurance  companies.   On   April   1,   2016   the IRDAI finally notified the IRDAI (Registration of Indian Insurance Companies) (Seventh Amendment) Regulations, 2016 (“Amendment Regulations”).

Significantly, the Amendment Regulations now disqualify Indian promoters and foreign investors that have exited an insurance joint venture for any reason at any time during the preceding two financial years from the date of requisition for a registration application. This effectively translates to a two year lock in period for all Indian promoters and foreign investors which have existing insurance joint ventures and wish to form a new insurance joint venture. There is ambiguity on whether this two year lock in will apply to promoters exiting one joint venture and acquiring shares in another existing joint venture. The language of the two year prohibition only seems to apply to new joint ventures and not to existing ones.

The Amendment Regulations have also amended the definition of “Indian promoters”.

Among other changes, the IRDAI is now required to record reasons in writing for rejection of requisition for a registration application and applicants aggrieved at any stage of the registration process can seek redress before the Securities Appellate Tribunal.

Interestingly, the Amendment Regulations also seek certified copies of the approval given by FIPB from applicants. This    will now need change, given that FIPB approval is no longer required for an increase in FDI from 26% to 49%.

The amended Regulation 11 of  the Registration  Regulations  that  deals  with  manner  of  calculation  of  equity  capital  held  by foreign investors largely relies on the Foreign Investment  Rules. The new Regulation 11 states that calculation of foreign shareholding will take into account: (a) quantum of paid  up  equity share capital held by Foreign Investors including foreign venture capital investors; and (b) proportion of the  paid  up  equity share capital held/controlled by such Foreign Investor(s) either by itself or through its subsidiaries in Indian promoter(s)    or Indian Investor(s). However, the inclusion of proportionate foreign shareholding in Indian promotor or Indian investor is exempted if such Indian entity is a banking company (excluding foreign branches) or a ‘public financial  institution’  in  terms  of the Companies Act, 2013. This exemption has of course been introduced in the interest of bank/public financial institution promoted insurers. The forgoing Regulation 11 is also of great significance to intermediaries as it is relied upon for computation of foreign shareholding in intermediaries such as insurance brokers, web aggregators and surveyors. The notification of the Amendment Regulations, no doubt, completes the full circle of deliberation and change in law which truly reflects the opening  up of the Indian insurance sector.