The Insurance Regulatory and Development Authority of India (“IRDAI”) has been instrumental in shaping the regulatory framework governing the Indian insurance sector. Recently, by way of a press release dated 24 January 2024, the IRDAI stated that an initiative will be undertaken to overhaul the existing regulatory framework governing Indian insurers, “driven by the objective of transitioning towards principle-based regulations and streamlining the existing array of regulatory stipulations”. The aim of the regulator is to comprehensively review and consolidate regulations, ensuring a more coherent and efficient regulatory framework for the insurance sector. In the following months a number of erstwhile regulations have been repealed and consolidated regulations have been issued by the IRDAI, such as the IRDAI (Registration and Operations of Foreign Reinsurers Branches and Lloyd’s India) Regulations, 2024; IRDAI (Protection of Policyholders’ Interests, Operations and Allied Matters of Insurers) Regulations, 2024; IRDAI (Actuarial, Finance and Investment Functions of Insurers) Regulations, 2024; IRDAI (Insurance Products) Regulations, 2024 and IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Insurers) Regulations, 2024.

Each of the above-mentioned regulations consolidate various regulations issued by the IRDAI over a period of years on different subject matters and provide a more streamlined regulatory framework on different aspects. Needless to say, this will simplify compliance matters across the Indian insurance industry.

The IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Insurers) Regulations, 2024 (“Consolidated Registration Regulations”) have repealed the following regulations: (i) IRDAI (Registration of Indian Insurance Companies) Regulations, 2022; (ii) IRDAI (Other Forms of Capital) Regulations, 2022; (iii) IRDAI (Manner of Assessment of Compensation to Shareholders or Members on Amalgamation) Regulations, 2021; (iv) IRDAI (Issuance of Capital by Indian Insurance Companies transacting other than Life Insurance business) Regulations, 2015; (v) IRDAI (Issuance of Capital by Indian Insurance Companies transacting Life Insurance business) Regulations, 2015; (vi) IRDAI (Scheme of Amalgamation and Transfer of Life Insurance Business) Regulations, 2013; and (vii) IRDAI (Scheme of Amalgamation and Transfer of General Insurance Business) Regulations, 2011 (“Erstwhile Regulations”).

While the principal aim of the IRDAI is to consolidate the Erstwhile Regulations, the regulator has also taken this opportunity to introduce certain changes to the regulatory framework governing registration, issuance of other forms of capital, transfer of shares and merger and amalgamation of insurers.  Some of the key changes introduced by the Consolidated Registration Regulations are:

• Lock-in Period Relaxation: The IRDAI (Registration of Indian Insurance Companies) Regulations, 2022 provided lock-in time periods for the different categories of shareholders of an Indian insurer (i.e., promoter and investor), on the basis of the time when the investment in the insurance entity was to be made by the respective shareholders. Further, the IRDAI had the authority to relax the lock-in period to enable the insurer to list its shares on the stock exchange(s) in India.

The Consolidated Registration Regulations also follow a similar pattern in relation to applicability of the lock-in requirement on promoters and investors of an Indian insurance company. However, the Consolidated Registration Regulations now specifically set out that in case of an investment made 15 years after grant of the certificate of registration to the insurer, the lock-in period shall be 1 year for a promoter and shall be nil for an investor. Further, the Consolidated Registration Regulations provide that the ‘competent authority’(i.e., the chairperson or such whole-time member or such committee of the whole-time members or such officer(s) of the IRDAI, as may be determined by the chairperson) may relax the lock-in requirement: (a) to enable the insurer to list its shares on the stock exchange(s) in India; or (b) under circumstances of distressed financial position, amalgamation or reorganization pursuant to change in applicable law of any insurer or its shareholders.

Further, the lock-in period shall not be applicable to: (a) equity shares allotted to employees or directors of the insurer under any employee benefit scheme; and (b) to investors holding less than 1% of the equity shares of the insurer.

• Pricing of shares: A critical change introduced by the Consolidated Registration Regulations is introduction of the norms relating to pricing of share issuances by insurers. The Consolidated Registration Regulations now provide that until an insurance company commences operations, its shares must be issued at face value. It has also been specified that the infusion of funds in the applicant entity seeking the certificate of registration from the IRDAI and the special purpose vehicle (if any), by its shareholders, shall be commensurate with the percentage of their equity stake in the applicant entity and the special purpose vehicle. Post commencement of business, the insurer or the special purpose vehicle (as the case may be) may issue equity shares at a premium.

• Right to nominate directors: The following specific criteria has been set out in the Consolidated Registration Regulations for an investor to nominate a director on the Board of Directors of an insurer.
  • The investor shall not nominate any director if the investment by such investor in the insurer does not exceed 10% of the paid-up capital of the insurer.
  • The investor may nominate only one director if its investment exceeds 10% of the paid-up capital of the insurer.
  • No shareholder shall nominate any director on the Board of Directors of any insurer if it has already nominated director on the Board of Directors of any other insurer engaged in the same class of insurance business.

• Listing of equity shares of an insurer on a stock exchange: The Erstwhile Regulations governing the listing of equity shares of an insurer on a stock exchange required an insurance company to obtain the prior written approval of the IRDAI for such listing of shares. However, the Consolidated Registration Regulations appear to have relaxed this requirement by providing that an insurer may approach the appropriate financial sector regulator for listing of its equity shares upon fulfilment of certain specified conditions, which, inter alia, include:
  • The insurer shall have obtained prior approval for transfer of shares for offer for sale and/or fresh issuance of shares, as may be required under the applicable legislations. However, the submission of details of the transferee shall not be mandatory.
  • The insurer shall file an intimation with the IRDAI at least 15 days before it approaches the appropriate financial sector regulator for listing of its equity shares. The insurer shall also keep the IRDAI informed regarding the subsequent developments in this regard.

Top of Form

The initiative of consolidating various regulations governing specific subject matters to facilitate and ease compliance by insurers and other stakeholders is a welcome move by the Indian insurance regulator. In furtherance of this regulatory objective, the Consolidated Registration Regulations set out the regulations governing registration, transfer of shares, capital structure and merger and amalgamation of insurers, which are critical not only for the existing insurers but also for any new applicants seeking to establish their business in the Indian insurance industry.

Some of the key changes introduced by the Consolidated Registration Regulations are likely to facilitate the growth and expansion of the Indian insurance industry. For instance, the delegation of power by the IRDAI to the ‘competent authority’ (i.e., the chairperson or such whole-time member or such committee of the whole-time members or such officer(s) of the IRDAI, as may be determined by the chairperson) for certain specified purposes, such as relaxation of the shareholder lock-in requirements should simplify the process for the applicants and may also expedite obtaining such approvals.

However, certain other requirements, such as restrictions on pricing of shares being issued by an applicant seeking to obtain a certificate of registration to operate as an insurer may have an impact on the funds available to such an entity at the time of commencing business operations. There can now be no distinction in pricing of share issuances for any shareholder (including non-residents) till the time of commencement of business. As typically such matters are commercial in nature and are decided between the stakeholders on the basis of various factors, the impact of this regulatory restriction will need to be determined. Similarly, the restrictions on investors who hold more than 10% shareholding in an insurer from nominating more than 1 director on the Board of Directors of such insurer may also impact commercial discussions between the stakeholders going forward.

Overall, the initiative of revisiting and reviewing the regulatory framework, consolidating regulations and repealing the out-dated regulations by the IRDAI will surely be welcome by the insurers and stakeholders, as the primary aim of this is to facilitate the growth and expansion of the Indian insurance industry.