The Insurance Regulatory Development Authority of India (Irdai) came out with the guidelines on Indian control and management, which can offer more clarity for the insurance sector. The insurance regulator has clarified that control can be exercised by any one or more by virtue of shareholding, management rights, shareholders agreements, voting agreements, and any other manner according to the applicable laws.
The Insurance laws (Amendment) Act 2015 introduced some much-awaited reforms, including increasing the foreign investment cap in the insurance sector to 49%. The Act also provides for “Indian Owned and controlled” requirement for an Indian insurance company.
The guidelines by Irdai also said, “Indian insurance company shall ensure majority of the directors excluding independent directors should be nominated by the Indian promoter(s)/Indian investor(s); appointment of key management person including chief executive officer/managing director/principal officer should be through the Board of Directors or by the Indian promoter(s) and or Indian investor(s).”
Amitabh Chaudhry, managing director and chief executive officer at HDFC Life, said: “Irdai guideline is a critical step in providing substantive regulatory clarity around the interpretation of the ‘Indian management and control’ requirement. The authority has transparently laid down the criterion with a fairly balanced approach.”
The regulator has also said total foreign investment, both direct and indirect holding in an Indian insurance company, shall not exceed 49%. The Irdai also said the control over significant policies of the insurance company should be exercised by the board, provided its constitution. “Key management persons excluding CEO may be nominated by the foreign investor provided that the appointment of such key management person is approved by the board of directors, wherein majority of the directors excluding independent directors are the nominees of Indian promoters. Where the chairman of the board is having a casting vote, such chairman should be nominated by the Indian promoter(s)/ Indian investor(s),” Irdai said.
“In line with the IRDAI requirement, we need to submit an undertaking towards compliance with the guidelines within next few months itself. We will need to undertake few changes in our board and also re-look at some of the shareholders’ arrangements ahead of that. However, we don’t foresee any issue in this regard,” Chaudhry said.
On quorum, Irdai said it shall mean and include presence of majority of the Indian directors, irrespective of whether a foreign investor’s nominee is present or not. “These guidelines would also be applicable to insurance intermediaries such as brokers, third party administrators, surveyors and loss assessors etc. However, in case of an insurance intermediary having more than 50 % of its revenue from the non-insurance activities, these guidelines shall not be applicable to such insurance intermediaries”, Irdai said.
Existing insurance companies are required to comply with ‘Indian owned and controlled’ guidelines within three months.