By way of an Order of 10th June 2016, the IRDAI set up a committee to evaluate the risk based capital approach and market consistent valuation of liabilities of Indian insurance business. The Committee released its report on 17th July 2017 in which it was noted that after almost fifteen years of promoter run business (almost all existing entities are joint ventures with foreign companies), the Indian insurance industry is still dominated by government owned public sector companies and the private insurance players in India are largely owned by well-established business houses.

The IRDAI has, however, recently been receiving requests to allow private equity funds to acquire majority stake in Indian insurance companies. In response such requests from private equity funds/ venture funds/alternate investment fund, the IRDAI has released the IRDAI (Investment by Private Equity Funds in Indian Insurance Companies) Guidelines 2017 (Guidelines) on 5th December 2017, to facilitate and regulate investment by private equity funds in insurance companies, as investors and promoters.

Key highlights and takeaways

  1. The Guidelines have been made applicable to unlisted Indian insurance companies and to the private equity funds who have invested in such unlisted insurance companies.
  2. The Guidelines allow for private equity funds to invest either directly in Indian insurance companies in the capacity of an investor and/or to invest through a special purpose vehicle (SPV) in the capacity of a promoter in the insurance company.
  3. A private equity fund has been defined under the Guidelines to include an alternate investment fund as registered with SEBI and/or a fund specifically formed for investment in one or more entities by one or more persons. An SPV is defined as a company registered under the provisions of Companies Act 2013 or a LLP formed under the Limited Liability Partnership Act 2008 for the purpose of investment in insurance company, as investor or promoter or both.
  4. Foreign investment in such private equity funds will be determined in accordance with the guidelines issued by the Department of Industrial Policy and Promotion from time to time.
  5. The Guidelines stipulate that the minimum shareholding by promoters/promoter group shall at all times be maintained at fifty per cent of the paid up equity capital of the insurance company. This requirement shall however not apply to a company where the present holding of the promoters is less than fifty per cent. In such cases the present holding of the promoters shall be considered as the minimum holding.
  6. The investment by a private equity fund in an insurance company shall be subject to compliance with the fit and proper criteria prescribed by the IRDAI.
  7. Where a private equity fund invests directly in the insurance company, the fund shall not hold more than ten per cent of the paid up equity share capital in the insurance company. Further, in such a scenario, all Indian investors including investment by the private equity fund(s) jointly shall not hold more than twenty-five per cent of paid up equity share capital of insurance company.
  8. Where a private equity fund invests in an insurance company through an SPV, in the capacity of a promoter, it will not be permitted to leave at will. The Guidelines stipulate a lock-in period of five years for the SPV which invests in the insurance company and also the investors of the SPV. The lock-in period shall however not be applicable on the shareholder(s) of the SPV holding less than ten per cent capital of the SPV.
  9. Induction of new shareholders into the SPV by issue of fresh shares beyond twenty five per cent shall require the prior approval from the IRDAI.
  10. A private equity fund through an SPV shall not be a promoter for more than one life insurer, one general insurer, one health and one reinsurer. Further, the SPV shall be required to provide an undertaking to subscribe to the rights issue of the insurance company. The post lock in period divestment plan preferably through an IPO in accordance with the relevant regulation applicable for such divestment shall be required to be submitted by the SPV.

In addition to the requirements set out under the Guidelines, it has been expressly clarified that private equity funds shall be required to continue to comply with the applicable provisions of, inter alia, the IRDAI (Transfer of Equity Shares of Insurance Companies) Regulations 2015, which govern the transfer of equity shares in insurance companies, as well as the guidelines on Indian owned and controlled, as issued by the IRDAI.


The Guidelines have opened more avenues for Indian insurance companies to obtain capital and are therefore a step in the right direction to augment private equity investment in the insurance sector. The move appears to have been welcomed by the industry as it allows private equity funds to act not just as financial/strategic investors in insurance companies, but also take charge and control of the insurance company in the capacity of a promoter and hence contribute to the further development of the Indian insurance industry. Apart from increasing the avenue for funding, the Indian insurance industry is also likely to benefit to from the expertise and experience which private equity funds often bring to the table.

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