1. Single Presence Policy

• The ‘single presence policy’ in the context of the insurance sector in India refers to the requirement that a person can be a promoter in only one insurance company in each class of insurance business i.e., life, general, health and reinsurance.
• Although not expressly stated in regulations, this had been the Insurance Regulatory and Development Authority of India’s (“IRDAI”), the Indian insurance regulator’s policy for several years, implemented at the time of grant of license or at a subsequent change in shareholding. There are press reports of a couple of incidents where the IRDAI implemented this policy and one of the most well-known instances being of when Fairfax Financial Holdings which held more than 10% of ICICI Lombard General Insurance Company Limited (“ICICI Lombard”) a general insurance company, was granted permission to promote another general insurance company in India only if it reduced its shareholding in ICICI Lombard to less than 10%. The IRDAI applied 10% shareholding as the threshold above which a shareholder would be treated as promoter. A person could however hold less than 10% in more than one insurance company in the same line of business – since such person would be treated as an investor of the company, and not a promoter.
• The IRDAI has enforced the requirement very strictly with the only exception having been permitted in 2020 when the Government of India merged 10 public sector banks, some of whom were already promoters of insurance companies. After the merger, there were at least two banks that became promoters (i.e., held more than 10%) of more than one insurance company in the same line of business. The IRDAI approved this as an exceptional matter subject to certain conditions including an obligation on the promoter banks to reduce their shareholding below 10% in one of the insurance companies within a specified period of time.
• The insurance industry in India is a highly capital-intensive business and the single presence policy was a barrier in attracting investors, both strategic and financial in spite of there being considerable amount of interest. The government has been considering various strategies to address this issue including increasing the maximum foreign investment permitted in Indian insurance companies to 74% and liberalizing the regime to raise debt capital. The relaxation in the single presence policy appears to be another step in this direction.

2. Relaxation

• In late 2022, the IRDAI issued the IRDAI (Registration of Indian Insurance Companies) Regulations, 2022 (“Registration Regulations”) and introduced the following relaxations to the single presence policy:
  • Promoter – only shareholders holding more than 25% of the paid-up capital of the insurance company (instead of the earlier 10% threshold) will be treated as a ‘promoter’ and a person can be a promoter of only one insurance company in the same line of business.
  • Investor – there can be two categories of investors, those holding up to 10% and those holding more than 10% and up to 25%. An investor can hold from more than 10% to less than 25% in up to two insurance companies in the same line of business while there is no cap on the number of insurance companies in which an investor can hold up to 10%. The Registration Regulations also recognise that an investor holding between 10% to up to 25% can nominate a director on the board of the insurance company but prohibits an investor holding up to 10% from having a board nominee.
• The Registration Regulations are silent on this, but it would appear that a person/ group can be a promoter of one insurance company and an investor (holding up to 25%) of another insurance company offering the same class of insurance; and would similarly allow an investor to hold between 10% and 25% of one insurance company and then holdings of less than 10% in any number of insurance companies in the same line of business.

3. Implementation

• Other than imposing a cap with respect to board nominees, the IRDAI has not provided any other guidance on the substantive rights that an investor can have in an insurance company. While this is usually a matter of commercial negotiation, this can give rise to interesting situations where an existing promoter reclassifies itself as an investor, while retaining substantive rights in the insurance company. Additionally, while it has been clarified that a promoter can reclassify itself as an investor only with IRDAI approval, the regulations do not prescribe the process (and the conditions) by which a promoter of an insurance company can ‘de-promoterise’ themselves so that they are treated as an investor.
• The relaxation in the single presence policy is only in respect of insurance companies and the singe presence policy continues to apply in respect of branches of reinsurance companies.

Authors: Kunal Thakore – Joint Managing Partner; Deepa Christopher – Partner; Chhavi Singhal – Senior Associate and Pranav Kandada – Associate