India: Insurance Newsletter – September 2015



The (Indian) Insurance Act, 1938 (as amended by the Insurance Laws (Amendment) Act, 2015) ("Amendment Act") allows the capital of an Indian insurance company to consist of equity shares and such other forms of capital as may be prescribed by regulations.

The Insurance Regulatory and Development Authority of India ("IRDAI") has, by way of a circular dated 28 August, 2015 issued a draft of the IRDAI (Other Forms of Capital) Regulations, 2015 ("Draft OFC Regulations") to govern the issuance of other forms of capital by Indian insurance companies, and has invited stakeholders' comments by 10 September, 2015.

The key changes proposed to be introduced by way of the Draft OFC Regulations are set out below.

I. Key Changes

1.1 Other Forms Of Capital: The permissible 'other forms of capital'/ 'instruments' ("OFC") prescribed are:

  1. preference share capital1; and
  2. subordinated debts2 (including debentures).

1.2 Key characteristics of OFC:

  1. must be fully paid for;
  2. will be subordinate to the claims of policyholders and all other creditors;
  3. in case of redeemable preference shares or debentures, the insurer will not pay any incentives for early redemption;
  4. dividends/interest will be paid out of distributable profits. If such payment may result in net loss or increase in the net loss, prior approval of the IRDAI will be needed provided the insurer maintains its solvency ratio; and
  5. the insurer must have the discretion to cancel dividend and interest distributions at any time and such cancellation must not be treated as an event of default.

1.3 The OFC will not be permitted to exceed 25% of the paid up equity capital of the insurer.

1.4 Prior approval of the IRDAI - The issuance of OFC by an Indian insurance company will require the prior approval of the IRDAI.

The application seeking approval3 will need to include a confirmation that:

  1. dividend/interest will not be cumulative; and
  2. the insurer will not be liable to pay dividend or interest for any financial year, inter alia, if its solvency is below the minimum prescribed by the IRDAI.

1.5 Eligible subscribers of OFC - OFC may be issued through private placement and will be permitted to be subscribed by 'Indian investors', 'foreign investors'4 and such other persons as may be approved by the IRDAI.

1.6 Optionality – Indian insurance companies will not be permitted to issue OFC with put option. However, they may issue OFC with a call option provided the call option has a lock-in of 5 (five) years and is exercised with the prior approval of the IRDAI5.

1.7 Impact on foreign investors

The OFC Regulations are unlikely to give foreign investors any significant advantages or any structuring options since:

  1. OFC will be included in the 49% foreign investment cap; and
  2. foreign investors will only be permitted to acquire compulsorily convertible preference shares6.


The Insurance Act7 allows an insurer to open a new place of business or close a place of business in India or outside India in the manner specified by regulations.

The IRDAI has, by way of a notification, issued the IRDAI (Places of Business) Regulations, 2015 ("PB Regulations")8 to govern the opening and closing of places of business by an Indian insurance company in India and outside India. Under the erstwhile Insurance Act9, this was governed/regulated by the IRDAI, by way of guidelines (issued from time to time) which have now been consolidated into the PB Regulations.


The IRDAI had, by way of a circular dated 17 June, 2015 issued an exposure draft of the IRDAI (Third Party Administrators-Health Services) Regulations, 201510 (Draft TPA Regulations) seeking comments from the stakeholders by 1 July, 2015. The final TP Regulations are yet to be notified.

Key provisions of the Draft TPA Regulations are set out below.

  1. TPAs will need to have a minimum paid up capital of INR 50,000,000 which must be in equity shares. The existing registered TPAs will have to comply with this stipulation within one year from the date of notification of the Draft TPA Regulations.
  2. The aggregate holdings of equity shares by foreign investors, including portfolio investors, in TPAs will not be permitted to exceed the norms as laid down by the Department of Industrial Policy and Promotion, Government of India.
  3. Every TPA will have to appoint either a Chief Administrative Officer or a Chief Executive Officer, who will be responsible for the proper day to day administration of the activities of the TPA and ensure compliance with provisions of regulatory requirements.


The IRDAI has, by way of a notification on 2 June, 2015, issued IRDAI (Obligation of Insurer in respect of Motor Third Party Insurance Business) Regulations, 2015 to prescribe the manner in which the obligation of an insurer in respect to motor third party insurance business for a financial year should be arrived at.

The regulations require every insurer to underwrite a minimum percentage of 90% of the overall motor third party insurance business premium of the industry for the immediate preceding financial year. Such minimum percentage must be equivalent to the simple average of insurer's share in total gross premium of the industry and that in total motor insurance premium of the industry, both in the immediate preceding financial year.


1 As defined under the (Indian) Companies Act, 2013 ("Companies Act"). Briefly, "preference share capital", with reference to any company limited by shares, means that part of the issued share capital of the company which carries or would carry a preferential right with respect to (a) payment of dividend; and (b) repayment, in the case of a winding up or repayment of capital, of the amount of the share capital paid-up or deemed to have been paid-up.

2 'Subordinated Debts' have been defined in the Draft OFC Regulations as: (a) debentures issued in accordance with provisions of Companies Act and satisfying the criteria laid down in the Draft OFC Regulations; and (b) any other instruments as may be permitted by the IRDAI from time to time.

3 Prescribed as 'Form 1'.

4 All non-resident investors eligible to invest through the Foreign Direct Investment route or the Foreign Institutional Investment route under the (Indian) Foreign Exchange Management Act, 1999 and the rules and regulations made under it ("Exchange Control Regulations").

5 While considering proposals of Indian insurance companies for exercising call option, the IRDAI will, inter alia, take into consideration the insurer's solvency both at the time of exercise of the call option and thereafter.

6 The Exchange Control Regulations do not allow issuance of redeemable/non-convertible preference shares to non-resident investors

7 Section 64VC.

8 These regulations replace the IRDA (Places of Business) Regulations, 2013.

9 The Insurance Act, 1938 as it existed prior to coming into force of the Insurance Laws (Amendment) Act, 2015.

10 The Draft TPA Regulations will supersede: (i) the Insurance Regulatory and Development Authority (Third Party Administrators - Health Services) Regulations, 2001; ii) the Insurance Regulatory and Development Authority (Third Party Administrators - Health Services) (First Amendment) Regulations, 2013; and iii) Insurance Regulatory and Development Authority (Third Party Administrators - Health Services) (Second Amendment) Regulations, 2013.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Nishith Desai Associates
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Nishith Desai Associates
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions