Insurance regulator IRDAI has come up with revised guidelines on the Stewardship Code for Insurers, or the set of guidelines for insurance firms on their engagement with companies in which they have invested.
“All the insurers need to review and update their existing stewardship within three months,” IRDAI Member (F&I) Pravin Kutumbe said, issuing the revised guidelines, which, among other aspects, favoured an oversight role for the insurance companies in the investee firms.
“Insurers should have mechanisms for regular monitoring of their investee companies in respect of their performance, leadership effectiveness, succession planning, corporate governance, reporting and other parameters they consider important,” the regulator said.
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Setting a three-month deadline for the insurers to update their stewardship policy and get the same approved by their board of directors, IRDAI sought to highlight how insurance companies ought to have an active role in the general meetings of investee companies and engage with the management to improve governance.
Eye on better returns
“This will result in informed decisions by the parties and improve the return on investments of insurers, which will ultimately benefit the policyholders,” the communication said.
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The insurance regulator had issued a code for stewardship in March 2017, which the insurance companies needed to adopt from 2017-18.
Noting that it had been decided to review existing guidelines based on experience in implementation, compliance and the recent developments in this regard, IRDAI said it wanted insurers to formulate a policy on the discharge of their stewardship responsibilities and make it public. The monitoring and engagement of the investee companies should cover strategy, risk and capital structure. The policy may also stipulate the threshold, based on the level of investment or any other criteria determined by the insurance company board, for intervention.
Advising insurers to exercise their own independent judgment with regard to voting decisions on resolutions and not automatically support the proposals of the investee company’s board, IRDAI said insurance companies with Assets Under Management up to ₹2.5 lakh crore have to compulsorily vote if their holding is more than 3% in the investee firm’s paid up capital. Insurers with AUM above ₹2.5 lakh crore should compulsorily vote if their holding is more than 5% in the investee firm’s paid up capital.
Other aspects emphasised, under the revised guidelines, are insurers having a clear policy on how they manage conflicts of interest, such as the investee firm being an associate; intervention; collaboration with other institutional investors; voting and disclosure of voting activity; as well as report periodically on their stewardship activities.