Mumbai, December 6, 2017

The insurance regulator has allowed private equity (PE) funds to invest in insurance companies through special purpose vehicles (SPVs) with a lockin period of five years, if they want to come in as promoters.

The Insurance Regulatory and Development Authority (IRDA) on Tuesday issued guidelines for PE funds’ investment in insurance companies stipulating norms including investment period and percentage of holding. The guidelines set a ceiling of 10% in insurance companies for investors. As an investor, a fund can invest up to 10% of the paid up equity of an insurance company.

The Indian investors, including PE funds, jointly should not hold more than 25% of paidup equity share capital of the company. In case of the PE investment through SPV, the minimum shareholding of promoters and promoter group should at all times be maintained at 50% of the paidup equity capital. In cases where the minimum holding is less than 50%, it should be maintained at those levels.

In case of one-time investment, the private equity fund will have to make an upfront disclosure. The regulator said that after the lock-in period of five years, an undertaking of the the divestment plan, preferably through an IPO, should be submitted. Many PE funds have invested in insurance sector either as financial or strategic investors. There are several proposals before the regulator to allow PE as strategic investor. “It paves the way for entry of professionals in the insurance sector to become promoters,” said Rajesh Relan, former CEO at PNB MetLife.

“Indian capital is scarce and largely concentrated with well established Indian business houses. These guidelines will enable incremental flow of FDI into the country and will unleash a new era for formation of new-age insurance companies that will lead to deeper penetration and growth of insurance industry.” The norms laid out that the chairman of the board of the insurance company should be an independent director, failing which the CEO should be a professional and not a nominee of a promoter.

At least, one third of the directors on the board should be independent directors. The minimum capital requirement for insurance companies is Rs 100 crore. There are two kinds of capital involved –– minimum capital requirement and solvency capital requirement. Solvency capital requirement depends on capital burn based on growth and the kind of business. It varies from business to products and distribution network.

[The Economic Times]