Private equity funds can directly invest in insurers: IRDAI

Regulator unveils slew of proposals to improve ease-of-doing business. Promoters can now dilute up to 26% stake, raise debt sans approval

November 25, 2022 09:15 pm | Updated November 26, 2022 12:13 am IST - HYDERABAD

India’s insurance regulator IRDAI has approved a bouquet of proposals ranging from permission for private equity funds to directly invest in insurers, allowing promoters to dilute up to 26% stake to dispensing with its approval for raising capital such as subordinated debt and preference shares.

Besides measures to improve ease-of-doing business, the regulator green-lighted a proposal for increasing the limit on tie-ups for intermediaries.

The Insurance Regulatory and Development Authority of India also approved a reduction in solvency norms for general and life insurers, which is expected to provide them access to an additional ₹3,500 crore.

Towards facilitating general insurers to efficiently utilise capital and resources and increase crop insurance expansion, the period for considering State/Central government premium dues for calculation of solvency position has been increased 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 about ₹1,460 crore.

In order to enable efficient utilisation of capital by life insurers, IRDAI said the factors for calculation of solvency provided in regulations are reduced — for unit linked business (without guarantees) — to 0.60% from 0.80%; and for PMJJBY from 0.10% to 0.05%. This will provide a relaxation in capital requirements by about ₹2,000 crore.

Among company-specific proposals that got the nod of Authority, at its 120th Board meeting here, were final approval to Go-digit General Insurance Company for listing; in-principle nod for IndiaFirst Life Insurance Company to list as well as go ahead for merger of Exide Life Insurance Company with HDFC Life Insurance Company.

Also, the regulator allowed registration of Kshema General Insurance Co. The company will soon start operations. A total of 19 applications are in pipeline at various stages, of which one is expected to be approved at the next meeting, IRDAI said.

SPV route optional

Elaborating on some of the proposals that it approved, IRDAI said investment through Special Purpose Vehicle is being made optional for PE Funds to invest in insurers. They can thus directly invest. In another decision, investment up to 25% of the paid-up capital by single investor (50% for all investors collectively) will now be treated as ‘Investor’. Investments over and above that will only be treated as promoter. Hitherto, the threshold was 10% for individual investor and 25% for all investors collectively.

The new provision allowing promoters to dilute their stake up to 26%, however, will be subject to condition that the insurer has satisfactory solvency record for preceding five years and is a listed entity. Likewise, the regulator also permitted subsidiary companies to be promoters of insurers, again subject to certain conditions.

Access to capital

IRDAI said besides dispensing with a requirement of prior approval to raise subordinated debt and or preference shares, it is approving an enhancement of the limits for raising such capital – from 25% to 50% of paid up capital and premium, subject to 50% of net worth of company. It is expected to enable companies to raise required capital in a timely manner. Amendments have been introduced for Board’s oversight in raising such capital, the Authority said.

On listing of insurers, IRDAI said the move will allow raising of capital while also enhancing transparency, efficiencies and accountability of insurers.

Wider reach

Stating it is committed to enable ‘Insurance for All’ by 2047, IRDAI said for enabling more access to insurance, the number of tie ups for corporate agents and insurance marketing firms (IMF) is being increased. A corporate agent can tie up with nine insurers, as against the three permitted now, while insurance marketing firms can tie up with six insurers as against the two hitherto allowed in each line of business of life, general and health for distribution of their insurance products. The area of operation of the marketing firms has also been expanded to cover entire State in which they are registered.

Regulatory sandbox

Under the Regulatory Sandbox regulations, IRDAI has decided to allow insurers/intermediaries to do experimentation on an ongoing basis by increasing the experimentation period from 6 months to up to 36 months. A change in the existing batch-wise (cohort approach) for the clearances/approvals to clearances/approvals on a continuous basis has also been approved.

A provision for review of rejected applications under sandbox has also been introduced as a part of amendments. Regulatory sandbox is a framework that provides a testing environment to the companies to enable them to test their innovative products and technologies in a controlled regulatory setting. It promotes innovation and technological solutions in the industry.

Welcoming the decisions, Bajaj Allianz Life Insurance MD and CEO Tarun Chugh said the reforms introduced such as expanding partnership options for corporate agents and IMFs, relaxations provided for incorporating new companies and attracting further capital are just a few examples of the changes being designed for benefit of the customers and the industry at large.

“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,” said ICICI Lombard GIC MD Bhargav Dasgupta.

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