Pursuant to Insurance Regulatory and Development Authority of India’s commitment to facilitate “Insurance for All” by the year 2047, it has introduced certain amendments in the regulatory framework applicable to insurers. Broadly, these are, inter alia, intended to increase the ease of setting up insurance companies and reduce the burden of compliance for investment.

A summary of some key changes is as under:

IRDAI (Registration of Indian Insurance Companies) Regulations, 2022

Insurance Regulatory and Development Authority of India (‘IRDAI’), through issuance of the IRDAI (Registration of Indian Insurance Companies) Regulations, 2022 (’Revised Registration Regulations’) on December 05, 2022, has subsumed and replaced the erstwhile IRDAI (Registration of Indian Insurance Companies) Regulations, 2000 and IRDAI (Transfer of Equity Shares) Regulations, 2015 (collectively, ‘Superseded Regulations’) with the Revised Registration Regulations. The Revised Registration Regulations regulate the registration requirements for underwriting insurance business in India and changes in the ownership of the same. These regulations will be subject to review after a period of three years from the date of issuance. Set out below are the key changes introduced by the Revised Registration Regulations:

IRDAI has also introduced the following additional changes:

i.    Investment as a promoter by private equity funds is now allowed directly and the requirement of a special purpose vehicle has been removed. However, such investments will be subject to additional conditionalities, including:

a.   the fund manager or parent fund must have been in operation for a period of 10 (ten) years;

b.   minimum amount of US$ 500 million must have been raised by the fund along with its group entities;

c.   the investible funds available with the fund must not be less than US$ 100 million; and

d.   manager of the private equity fund has invested in financial sector in India or other jurisdictions.

ii.   In case of investments through a special purpose vehicle (‘SPV’), certain specific compliance requirements have been introduced, including that the SPV does not issue any convertible instrument or stock options or sweat equity, transfer of shares of the SPV will be subject to IRDAI approval (on the same terms as those required for the insurer), issue of shares of the SPV will be subject to valuation conditionalities etc.

iii.  Promoters may dilute their stake below 50% but not below 26% provided that (a) the insurer has a track record of solvency ratio above control level for the immediately preceding 5 (five) year period of such dilution and, (b) the shares of the insurer are listed on an Indian stock exchange.

iv.  Investors can invest in any number of insurance companies subject to each of such investment being capped of 10% of the paid-up equity capital of the respective insurer. If the investment exceeds 10% but is under 25% of an insurer’s paid-up equity capital, then the investment by the investor will be restricted to a maximum of two insurers in each class of business.

v.   One-time investments by investors into an insurer will have to be disclosed upfront and will require the promoter(s) to undertake to infuse capital to meet its solvency and/or business requirements arising in future.

IRDAI (Other Forms of Capital) Regulations, 2022

IRDAI on December 05, 2022, has replaced the IRDAI (Other Forms of Capital) Regulations, 2015 with IRDAI (Other Forms of Capital) Regulations, 2022 (‘Revised Regulations’) which regulates the issuance of preference share capital and subordinate debt (‘Other Forms of Capital’) by an insurer. The Revised Regulations will be in force for 3 (three) years unless reviewed earlier. The key changes introduced include the following:

i.   The requirement of prior IRDAI approval requirement for raising Other Forms of Capital has been removed.

ii.   An insurer may exercise a call option on such securities without the prior approval of IRDAI after 5(five) years of issue provided that after the exercise of the call option the solvency margin of the insurer is not, at least 20% above the prescribed control level of solvency applicable to such insurer.

iii.  The cap for raising Other Forms of Capital has been increased from 25% to 50% of the paid-up equity capital of the insurer subject to an overall cap of 50% of the net worth.

iv.   An insurer is not permitted to invest in Other Forms of Capital issued by another insurer with a common promoter.

IRDAI (Insurance Intermediaries) (Amendment) Regulations, 2022

IRDAI, by way of an amendment dated December 5, 2022, to, inter alia, Insurance Regulatory and Development Authority of India (Registration of Corporate Agents) Regulations, 2015, increased the number of insurers that a corporate agent can have agency arrangements with. Now corporate agents registered specifically for a class of business (life, health or general) can have arrangements with a total of 9 (nine) insurers as against previously permitted 3 (three) insurers. Further, a composite corporate agent can have arrangements with a total of 27 (twenty-seven) insurers without sub-limits therein as against the earlier limit of 9 (nine) insurers with sub-limits of 3 (three) insurers per class of business.

Way Forward

The changes introduced by IRDAI have relaxed the regulatory environment for raising funds by and investment into insurance companies. There is now more clarity in relation to investment by private equity funds and certain regulatory hurdles for such investments have been removed. IRDAI has also formalized its practice in relation to post-investment requirements, which provides more clarity to potential investors. The new framework should provide an impetus to future fund raises by insurance companies by way of equity as well as other forms of investments. As the changes will be subject to a review after 3 (three) years, IRDAI will review and take steps to address any concerns arising from the new framework in a timely manner.