Master Circular on Registration of Indian Insurance Companies Regulations Timely and helpful clarifications aimed at transitioning to new investment regime

I.        

Introduction

II.     

Key provisions

BACKGROUND

MASTER CIRCULAR CLARIFICATIONS

COMMENT

1.    LOCK-IN FOR INVESTMENT-APPROVALS GRANTED PRIOR TO THE NEW REGULATIONS

Old regime:

New Regulations:

For approvals granted prior to the New Regulations:

Applicability of the new lock-in provisions to investments made under the old regime was a key issue discussed by our firm with the IRDAI prior to the finalisation of the New Regulations. 2 key requests of the investor-community that we had emphasized to the IRDAI were:

Vide the Master Circular, IRDAI has addressed both these concerns, which is a positive step and clarifies the position and facilitates smoother entry and exit from the insurance sector.

2.    LOCK-IN IN CASE OF LISTED INSURERS

Proviso to Regulation 6(1) of the New Regulations provides that IRDAI “may relax” the lock-in requirements to enable the insurer to list its shares on the stock exchange(s) in India.

Lock-in under the New Regulations will not be applicable on the insurers having equity shares listed on the stock exchange(s) in India.

Minimum promoter holding requirements (as per the New Regulations) will however need to be complied with.

During our discussions with the IRDAI on the draft of the New Regulations, we had suggested such an automatic fall away of lock-in at the time of listing. The New Regulations did not explicitly provide for this (and instead IRDAI retained the enabling right to consider approving the fall-away of lock-in at the time of listing. The clarification introduced (vide the Master Circular) implements the same concept.

Introduction of this concept is a progressive move as this will give investors (whether investing as ‘promoter’ or ‘investor’) the certainty of exit and confidence at the time of making the investment and ties in well with IRDAI’s soft push  to insurers to consider listing their shares in the very near future.

3.    DIRECTORSHIP RESTRICTIONS

Proviso to Regulation 6(7)(b)(iii) of the New Regulations provide that “investor may nominate a director on the Board of the insurer if its investment exceeds 10 percent of the paid up capital of the respective insurer.”

1.     

Applicability: The Master Circular will be in force for 3 years from the date of its issuance (i.e. from 24 April 2023).

Comment: This is similar to the 3-year sunset clause provided in the New Regulations and is in line with the latest broader approach of the IRDAI to relook at insurance laws/regulations periodically to ensure that these are updated to meet changing industry needs. (Note that similar sunset clauses have also been included in certain recently notified new regulations, including, IRDAI (Expenses of Management of Insurers transacting General or Health Insurance Business) Regulations 2023, IRDAI (Payment of Commission) Regulations 2023, IRDAI (Other Forms of Capital) Regulations, 2022, etc).

2.     

Repeal of guidelines / circulars: The Master Circular specifically repeals the following from the date of the Master Circular: (a) IRDAI (Investment by Private Equity Funds in Indian Insurance Companies) Guidelines 2017; (b) Guidelines for Listed Indian Insurance Companies 2016; (c) Circular dated 22 July 2020 on transfer of shares of the insurance companies; and (d) Circular dated 27 September 2018 on details of equity holding pattern of insurance companies.

Comment: Though this was IRDAI’s desired/ intended effect at the time of notification of the New Regulations, it was not specifically set out in the New Regulations and hence, from a legal perspective, there was doubt, ambiguity as well as separate and inconsistent (to some extent) regulations in place dealing with the same aspects. These doubts have now been settled.

3.     

Lastly, the Master Circular prescribes forms / stipulates details for various applications to be made to the IRDAI – including applications to be filed at the different stages of the registration process (namely, Form IRDAI/R1 (and prior to that application for issuance of this form), Form IRDAI/R2), application for seeking share-transfer approval, etc. The Master Circular also discusses validity of no-objection certificates and Form IRDAI/R1 issued by IRDAI prior to notification of the New Regulations and clarifies the processing fees payable for applications that were lodged prior to the notification of the New Regulations.

III.  

Conclusion