In this article, we have examined the changes introduced
by the IRDAI pursuant to the IRDAI (Registration of Indian
Insurance Companies) (Seventh Amendment) Regulations, 2016 issued
on April 1, 2016. Significantly, the IRDAI has clarified the manner
of computation of foreign investment and introduced a provision
disqualifying promotors and investors that have exited an insurance
joint venture in the last two financial years from applying for a
registration of a new insurance company.
When the insurance sector was opened up to 49% in terms of the
Amendment Act, it was felt that there were several changes required
to the existing foreign investment and insurance laws to reflect
the changed position.
Accordingly, the RBI's regulatory framework and the FDI
policy was duly amended to reflect the new cap and there were
expectations from the IRDAI since last year to amend the IRDA
(Registration of Indian Insurance Companies) Regulations 2000
("Registration Regulations") as it continued to state the
earlier limit on foreign investment. At the same time, the central
government's Indian Insurance Companies (Foreign Investment)
Rules 2015 ("Foreign Investment Rules") issued on
February 19, 2015 permitted insurers and intermediaries to increase
their stake to 49% subject to complying with certain
The Registration Regulations continue to govern the manner of
registration of insurance companies. On April 1, 2016 the IRDAI
finally notified the IRDAI (Registration of Indian Insurance
Companies) (Seventh Amendment) Regulations, 2016 ("Amendment
Significantly, the Amendment Regulations now disqualify Indian
promoters and foreign investors that have exited an insurance joint
venture for any reason at any time during the preceding two
financial years from the date of requisition for a registration
application. This effectively translates to a two year lock in
period for all Indian promoters and foreign investors which have
existing insurance joint ventures and wish to form a new insurance
joint venture. There is ambiguity on whether this two year lock in
will apply to promoters exiting one joint venture and acquiring
shares in another existing joint venture. The language of the two
year prohibition only seems to apply to new joint ventures and not
to existing ones.
The Amendment Regulations have also amended the definition of
Among other changes, the IRDAI is now required to record reasons
in writing for rejection of requisition for a registration
application and applicants aggrieved at any stage of the
registration process can seek redress before the Securities
Interestingly, the Amendment Regulations also seek certified
copies of the approval given by FIPB from applicants. This will now
need change, given that FIPB approval is no longer required for an
increase in FDI from 26% to 49%.
The amended Regulation 11 of the Registration Regulations that
deals with manner of calculation of equity capital held by foreign
investors largely relies on the Foreign Investment Rules. The new
Regulation 11 states that calculation of foreign shareholding will
take into account: (a) quantum of paid up equity share capital held
by Foreign Investors including foreign venture capital investors;
and (b) proportion of the paid up equity share capital
held/controlled by such Foreign Investor(s) either by itself or
through its subsidiaries in Indian promoter(s) or Indian
Investor(s). However, the inclusion of proportionate foreign
shareholding in Indian promotor or Indian investor is exempted if
such Indian entity is a banking company (excluding foreign
branches) or a 'public financial institution' in terms of
the Companies Act, 2013. This exemption has of course been
introduced in the interest of bank/public financial institution
promoted insurers. The forgoing Regulation 11 is also of great
significance to intermediaries as it is relied upon for computation
of foreign shareholding in intermediaries such as insurance
brokers, web aggregators and surveyors. The notification of the
Amendment Regulations, no doubt, completes the full circle of
deliberation and change in law which truly reflects the opening up
of the Indian insurance sector.
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.
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