Following the finance minister's budget speech, the Insurance (Amendment) Act of 2021 (Amendment Act) was notified earlier this year to increase the foreign direct investment limit in Indian insurance companies to 74%. Pursuant to this, the Ministry of Finance issued the Indian Insurance Companies (Foreign Investment) Amendment Rules 2021 (Amendment Rules) on 19 May 2021 to amend specific provisions of the Indian Insurance Companies (Foreign Investment) Rules 2015 1.
We noted in our previous update2 that to effectively enforce these changes in law and to bring certain clarity on governance matters, applicable underlying regulations and guidelines issued by the IRDAI would also need amendment. As anticipated, the IRDAI has now notified the IRDAI (Indian Insurance Companies) (Amendment) Regulations 2021 (Amendment Regulations) to update the provisions of the following regulations:
- IRDA (Registration of Indian Insurance Companies) Regulations 2000;
- IRDAI (Transfer of Equity Shares of Insurance Companies) Regulations 2015;
- IRDAI (Issuance of Capital by Insurance Companies Transacting Life Insurance Business) Regulations 2015;
- IRDAI (Issuance of Capital by Insurance Companies Transacting Other Than Life Insurance Business) Regulations 2015.
Broadly, the changes to these regulations are in line with the changes brought about by the Amendment Act and the Amendment Rules. Additionally, pursuant to the Amendment Regulations, the requirement for ensuring compliance with Indian ownership and control as stipulated under these regulations has been omitted.
While the IRDAI has effectively revised the applicable regulations by way of the Amendment Regulations, further amendments may be anticipated on related matters. By way of illustration (i) the Guidelines for Corporate Governance for insurers in IndiaM of 18 May 2016 may be updated to reflect the revised norms on board composition; (ii) the IRDAI (Investment by Private Equity Funds in Indian Insurance Companies) Guidelines 2017 may be amended to, inter alia, delete the requirement of complying with Indian ownership and control.
Once these amendments come through, there will be further clarity on the norms on governance and Indian insurance companies/promoters/investors will be able to avail the benefit and structure their future transactions accordingly.
1 Please see our update of 21 June 2021 on this subject matter, available at: https://www.mondaq.com/india/inward-foreign-investment/1081846/insurance-companies-foreign-investment-amendment-rules-2021.
2 Please see our update of 2 April 2021 on this subject matter, available at: https://www.mondaq.com/india/insurance-laws-and-products/1053498/74-fdi-allowed-for-the-insurance-sector-amendment-to-the-insurance-act-1938.
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