IRDAI’s Master Circular on Registration, Capital Structure, Transfer of Shares and Amalgamation of Insurers, 2024

In March 2024, the IRDAI had issued 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 Through the Registration Regulations, the IRDAI has consolidated and repealed seven regulations which governed the registration, issuance of capital, transfer of shares and amalgamation of insurance companies, into one single regulation. Our detailed analysis of the Registration Regulations and the key changes introduced through them can be found here.

In May 2024, the IRDAI notified the Master Circular on Registration, Capital Structure, Transfer of Shares and Amalgamation of Insurers, 2024 (“Master Circular”) to supplement the provisions of the Registration Regulations and issue clarifications and timelines with respect to certain compliance requirements. The Master Circular primarily sets out the forms required to be filed by a company seeking registration as an insurer and for prior approval for transfer of shares or issuance of fresh capital by an insurer. The Master Circular also sets out the details required to be filed by an insurer for event-based applications or intimations such as for listing on a stock exchange, scheme of amalgamation, or issue of other forms of capital.

The Regulations are effective from 20 March 2024 and the Master Circular from 15 May 2024. All capitalised terms in this article will have the same meaning as in the Master Circular and Regulations.

Key Requirements
1 Reporting Requirements
The Registration Regulations prescribe that any changes in the shareholding of an insurer exceeding 5% must be reported to the insurer immediately. Where the change in shareholding exceeds 1% but is less than 5%, the report must be submitted on a quarterly basis in the format set out in the IRDAI Master Circular on Submission of Returns, 2024. Further, the insurer must also submit a declaration stating that its shareholders holding more than 1% of the shareholding (or 5% in case of a listed insurer) fulfil the “fit and proper” criteria set out in the Registration Regulations on an annual basis.

2 Transfer of Shares
Under the Registration Regulations, an insurer must seek the prior approval of the IRDAI for any transfer or issue of shares that exceed the following thresholds, including on a cumulative basis in a financial year:

(i) where after the transfer, the paid-up equity capital holding of transferee in the shares of the insurer is likely to exceed five percent of the paid-up equity capital of the insurer and any subsequent transfers where the shareholding of the transferee exceeds further 5% of the paid-up equity capital of the insurer, in a financial year; or
(ii) the nominal value of shares intended to be transferred by an individual firm, group constituents of a group or body corporate under same management jointly or severally exceeds one percent of the paid-up equity capital of the insurer and for any subsequent transfers by the transferor where the paid-up equity capital of the insurer exceeds 1% of the paid-up equity capital, in a financial year.

The Master Circular has prescribed the application format to seek approval for any proposed transfer of shares exceeding these thresholds in Annexure-4 and prescribed certain additional details to be furnished with the application in paragraph B.1.

3 Exercise of ESOPs
The Master Circular has clarified that the exercise of ESOP or any similar share-linked benefit scheme for the employees or directors of the insurer must be in compliance with Section 6A(4)(b) of the Insurance Act, 1938 read with the Registration Regulations i.e. the transferee must furnish a declaration whether the shares are being held for the transferee’s benefit or as a nominee and to provide details of the beneficial owners and extent of beneficial ownership if applicable.

Prior IRDAI approval must be sought for the exercise of ESOP if it results in a transfer or issue of shares that exceeds the thresholds prescribed under the Insurance Act and Registration Regulations. The Master Circular has particularly emphasized this requirement in relation to the exercise of ESOP by one or more key  managerial personnel or directors.

Where a trust has been formed by an insurer for the issuance of ESOPs to its employees, the issue of shares to such trust and exercise of option by one or more employees must also comply with the above requirements.

IRDAI must be notified promptly in case the number of Independent Directors in an insurance company falls below three. The resignation / removal of an Independent Director must also be intimated, with reasons, to IRDAI within 30 days. The vacancy must be filled by the subsequent Board meeting or 3 months from the date of such vacancy, whichever is later.

4 Nominee Directors
The Registration Regulations introduced a restriction 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. The Master Circular requires existing board positions which are not in compliance with this restriction to be vacated by 31 March 2025.

5 Lock-In Period
The Registration Regulations introduced certain relaxations on the lock-in period on shares held in insurance companies. The Master Circular has set out the applicability criteria of these relaxations for the lock-in period imposed on shares prior to the notification of the Registration Regulations.

In case the shareholder is a promoter, the shares acquired before the notification of the Registration Regulations will get the benefit of the relaxations.

In case the shareholder is an investor (i.e., a shareholder holding less than 25%), shares acquired prior to the notification of the IRDAI (Registration of Indian Insurance Companies) Regulations, 2022 (the “Previous Regulations”, which have been repealed by the Registration Regulations) will not be eligible for the relaxed lock-in period. The relaxed lock-in period will however apply to the shares acquired during the subsistence of the Previous Regulations.

The Registration Regulations introduced appropriate relaxations on matters such as the lock-in period on shares, procedure for listing of the shares, and compliance requirements for shareholders holding less than 1%. The Master Circular has supplemented these provisions with important clarifications on applicability, timeline, and the details to be furnished with respect to event-based applications. The consolidated approach will help streamline compliance for insurers as well as companies applying for registration as an insurer.

Authors: Deepa Christopher – Partner, Sonakshi Verma and Chhavi Singhal – Senior Associates and Aanchal Kabra, Pranav Kandada and Dhruvi Shah – Associates

Disclaimer: This alert highlights only key issues and is not intended to be comprehensive. The contents of this alert do not constitute any opinion or determination on, or certification in respect of, the application of Indian law by Talwar Thakore & Associates (“TT&A”). No part of this alert should be considered an advertisement or solicitation of TT&A’s professional services.