The IRDAI has recently notified a consolidated regulation for all matters relating to the registration of insurers, their capital structure, transfer of shares, and amalgamation. While largely retaining the framework from the previous regulations, the IRDAI has introduced substantial key changes, including removing the prior approval requirement for listing of shares, introducing a number of relaxations to the lock-in period on shareholders, and restricting investors from appointing a director in case they have already appointed a director in any other insurer in the same line of insurance.

The Insurance Regulatory and Development Authority of India (the “IRDAI”) has notified the IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Insurers) Regulations, 2024 (“Registration Regulations”).

Through the Registration Regulations, the IRDAI has consolidated and repealed the following seven regulations which governed the registration, issuance of capital, transfer of shares and amalgamation of insurance companies, into one single regulation: IRDAI (Registration of Indian Insurance Companies) Regulations, 2022 (“Previous Registration Regulations”); IRDAI (Other Forms of Capital) Regulations, 2022; IRDAI (Manner of Assessment of Compensation to Shareholders or Members on Amalgamation) Regulations, 2021; IRDAI (Issuance of Capital by Indian Insurance Companies transacting other than Life Insurance business) Regulations, 2015; IRDAI (Issuance of Capital by Indian Insurance Companies transacting Life Insurance business) Regulations, 2015; IRDA (Scheme of Amalgamation and Transfer of Life Insurance Business) Regulations, 2013; and the IRDA (Scheme of Amalgamation and Transfer of General Insurance Business) Regulations, 2011 (“Previous Regulations”).

The Registration Regulations largely retain the framework set out in the Previous Regulations but introduce some key changes as described below:

• Shareholding and related matters
  • a. Lock-in

A lock-in on shares for an identified period of time has been a key condition imposed

by the IRDAI, both at the time of registration and as part of approving any share transfers. Until the relaxation provided in the Previous Registration Regulations, a lock-in of 5 years was applicable on all shareholders (original and any transferee), irrespective of their shareholding. The IRDAI would however relax the lock-in based on specific applications made to it. In the Previous Registration Regulations, the IRDAI recognized that a lock-in of 5 years was not necessary in all situations and proposed a lock-in ranging from 8 years to 2 years depending on the category of shareholder (i.e., promoter or investor) and the time the investment is made (i.e., after 15 years, between 10 years to 15 years,  between 5 years to 10 years and within the first 5years). The Registration Regulations have codified these relaxations with respect to the lock-in period, as follows –

1. a lock-in shall not be applicable to shareholders of listed insurance companies,
2. the IRDAI may consider relaxing the lock-in in case the insurance company or its share holders are in financial distress, where the insurance company or its shareholders are subject of an amalgamation and;
3. A lock-in period shall not be applicable on the equity shares allotted to employees or directors of the insurer pursuant to any employee benefit scheme; and
4. A lock-in period shall not be applicable in case of an investor holding up to 1% of the equity shares of the insurer or an investor investing in an insurance company which has been registered for more than 15 years. Further, in case an investment is made after 15 years, the promoter will be subject to a lock-in of only one year.

The relaxation to the lock-in period in the Previous Registration Regulations allowed additional persons to consider an investment in insurance companies since they could now consider investments for a shorter horizon. The above codification of the exceptions to the lock-in requirement is something that the IRDAI has been implementing in practice.

b. Price at which shares can be issued

Generally, under Indian company law, a company has to issue shares at least at their face value but there is no maximum limit prescribed on the amount at which the shares can be issued i.e., there is no cap on the securities premium. The Registration Regulations provide that till an insurance company commences business, its shares have to be issued at fair value and the funds infused in the insurance company by a shareholder has to be in proportion to the percentage of stake held in the insurance company and the special purpose vehicle promoting it, if any. The Registration Regulations provide that the insurance company may be permitted to be issued shares at a premium after commencement of business.

The inclusion of these provisions appear to be a direct attempt to regulate structures that have existed in the market to address a variety of commercial arrangements between parties. Even though not expressly prohibited, the IRDAI has often objected to them in the context of considering applications for share transfers. The IRDAI however recognizes that there may be situations where capital may have to be infused at a premium e.g. to maintain solvency in an insurance company in case one or more of the shareholders are unable to provide share capital.

c. Shareholding by promoters

The single presence policy i.e., the prohibition on a person holding more than 10%in more than two insurance companies in a particular class of business (i.e., becoming a promoter) has been a key characteristic of shareholding in Indian insurance companies. Please see our previous alert for a detailed analysis of the issue. The Previous Registration Regulations relaxed this policy allowing shareholders to take between 10 to less

than 25% shareholding in a company and categorise themselves as an investor. The Registration Regulations introduce some further related provisions as follows:

1. The IRDAI may permit a person to be a promoter of two insurance companies at the same time on a temporary basis if it is part of a scheme for amalgamation or transfer of the insurance business;
2. The Previous Registration Regulations permitted an investor holding more than 10% to appoint a director on the board of the insurance company. The Registration Regulations however provide that a shareholder holding more than 10% of an insurance company may nominate a director on the board of the insurance company only if the shareholder has not already appointed a director on the board of any other insurance company in the same line of business. This restriction is likely being introduced to address concerns around conflict of interest (and competition law) that can arise if a shareholder has a nominee director on the board of two insurance companies in the same line of business (and by virtue of that position gets access to confidential information).

The Registration Regulations reiterate that the classification as a promoter and/or investor and vice versa can be permitted only with IRDAI approval. However, they do not provide any more details on the process to be followed or the criteria that will be applied by the IRDAI while considering the application, especially, as we discussed in this alert, the views of the other promoters and the company. Since the status of “promoter” would have been the basis of the contractual arrangements between the promoters and the company (and in particular, the governance and information rights), they would want to revisit these arrangements if their counterparty proposes to be re-classified as an investor. However, in the absence of any specific direction by the IRDAI on the issue, the shareholders enjoying the benefit of these rights are not compelled to concede those rights in any negotiation.

(ii) Listing of insurance companies

The rules relating to listing of insurance companies was previously set out in the IRDAI (Issuance of Capital by Indian Insurance Companies transacting other than Life Insurance business) Regulations, 2015 and the IRDAI (Issuance of Capital by Indian Insurance Companies transacting Life Insurance business) Regulations, 2015 (collectively, the “Listing Regulations”).Under the Listing Regulations, an insurance company had to obtain the prior written approval of the IRDAI for listing prior to approaching the Securities and Exchange Board of India to list its shares on a stock exchange. The Registration Regulations however provide that an insurance company can approach any financial sector regulator to list its shares on the stock exchange(s) recognized under the Securities Contracts (Regulation) Act, 1956, upon the fulfillment of certain conditions. These conditions include seeking the approval required from the IRDAI for transfer or issuance of shares exceeding certain percentage thresholds, intimating the IRDAI prior to approaching the respective financial sector regulator and keeping it informed of subsequent developments in this regard, and disclosing in the offer document that such intimation does not imply validation of the offer document by the IRDAI.

(iii) Amalgamation and issuance of other forms of capital

The Registration Regulations also include provisions relating to amalgamation and transfer of insurance business, manner of payment of compensation to share holders in case of amalgamation of insurance companies by IRDAI under section 37A of the Insurance Act and the rules relating to issuance of subordinated debt by insurance companies. The regime in respect of the above matters is substantially the same as the regime contained in the  IRDAI (Other Forms of Capital) Regulations, 2022; IRDAI (Manner of Assessment of Compensation to Shareholders or Members on Amalgamation) Regulations, 2021, the IRDAI (Scheme of Amalgamation and Transfer of Life Insurance Business) Regulations, 2013; and the IRDAI (Scheme of Amalgamation and Transfer of General Insurance Business) Regulations, 2011 with some amendments proposed in relation to the operational matters.

(iv) Investors with upto 1% shareholding

The Registration Regulations have introduced relaxations to certain requirements on investors who do not hold more than 1% of the equity shares of the investor. Such investors will not be subject to  a lock-in  on their shares or have to submit an undertaking to infuse capital into the insurer to meet solvency and/or business requirements in the future, which the IRDAI asks promoters to provide.

(v) Competent Authority

The Registration Regulations have introduced the concept of a ‘Competent Authority’ i.e., the Chairperson, or whole-time member or committee of the whole-time members of officers of the IRDAI, as determined by the Chairperson of the IRDAI. This seems to be a recognition of the fact that approval of the IRDAI, where deemed necessary under the Registration Regulations, will be given by the relevant officer and/or committee of the IRDAI as determined by the Chairperson of the IRDAI.

For more information, please connect with the authors: Kunal Thakore – Joint Managing Partner; Deepa Christopher – Partner; Rebha Dakshini – Managing Associate; Pranav Kandada – Associate.