An exposure draft released by insurance regulator Insurance Regulatory and Development Authority of India (Irdai) has proposed to allow private equity (PE) funds to come in as promoters of insurance and reinsurance companies, with certain conditions, including that the PE funds have to complete 10 years of operation and funds raised by them, including their group entities, must amount to $500 million or more.
Irdai has also proposed to amend the existing regulations to provide “fit and proper criteria” for applicants desiring to carry on insurance business, limits of investment to be made in insurance companies, lock-in period on investment and simplify the process of insurers’ registration.
According to the exposure draft, private equity funds may invest in the applicants in the capacity of promoter or investor. A private equity fund may invest in any insurer in the capacity of “promoter”, only if it has completed 10 years of operation, funds raised by the PE fund including its group entity or entities is $500 million or more, investible funds available with the PE fund are not less than $100 million and it has invested in the financial sector in India or the other jurisdictions.
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As per the proposed amendment to the existing rules, a registration application to carry on an insurance business shall not be eligible to apply for the requisition, where the requisition for registration application has been rejected by the Irdai or withdrawn by the applicants at any time during five financial years preceding the date of application, certificate of registration has been cancelled by the authority, or the investors or promoter of the existing venture have exited for any reason at any time during the preceding two financial years, from the date of requisition for registration application.
On the newly-introduced ‘fit and proper criteria’ for a registration applicant, the exposure draft issued on October 13 said, “The Authority (Irdai) shall assess the applicant, its promoters and investors on the fit and proper criteria on the basis of factors as may be considered relevant, including but not limited to as specified in Schedule 1 of these Regulations. The applicant, promoter and investors shall be fit and proper on a continuous basis i.e. even after the grant of Certificate of Registration. In case the applicant, its promoters and/or Investors are not found to be fit and proper at any stage, the Authority may take such action as may be deemed appropriate.”
The determination of the ‘fit and proper’ status of applicants, promoters and/or investors is proposed to take into account the applicant’s integrity, reputation, track record, financial strength of the promoter/ investor, ability to infuse capital to meet business, solvency and regulatory requirements, compliance with laws in India including FEMA and taxation law, ability to access capital or financial markets to source funds that may be needed for any future capital infusion and business record and experience of the applicant.
The proposed amendment said investment made in the company, in the capacity of promoter or investor at the time of or before grant of the certificate of registration (R3), shall have a lock-in period of five years. And investment made during five years post grant of R3 (in case of change in shareholding pattern) shall have a lock-in period of five years or eight years from grant of R3 — whichever is earlier. The insurance regulator has asked various stakeholders and the general public to share their views/comments on the exposure draft by November 3, 2022.