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03 January 2018

IRDAI (Investment by PE Funds in Indian Insurance Companies) Guidelines


IRDAI has issued certain guidelines with respect to investment in insurance companies either as an investor or as a promoter. These Guidelines provide clarity as they set out a regulatory framework that will now apply, and which will enable increased flow of Foreign Direct Investment into the country and will also unleash a new era for formation of new-age insurance companies that will lead to deeper penetration and growth of the insurance industry.

· Applicability These Guidelines are applicable to unlisted Indian insurance companies and to the Private Equity Funds (“PEFs/ Funds”) who have invested in the unlisted Indian insurance companies, either as an investor or as a promoter.

PEFs include an Alternative Investment Fund (“AIF”) registered with the Securities and Exchange Board of India (“SEBI”) and/or a Fund specifically formed for investment in one or more entities by one or more persons.

· Investment by PEF A PEF can, in the capacity of an investor, make direct investments in an Indian insurance company subject to the following conditions:

i.   Investment shall be as per the fund’s strategy reflected in its placement memorandum to its investors;
ii.  The Fund shall not hold shares in the insurance company exceeding 10% of the paid up equity share capital of insurance company;
iii.  All Indian investors including the investment by the PEFs jointly shall not hold more than 25% of paid up equity share capital of the insurance company;
iv.  The minimum shareholding by promoters/promoter group shall at all times be maintained at 50% of the paid up equity capital of the insurer. However, where the        present holding of the promoters is below 50%, such holding shall be the minimum holding.
v.   The investment shall be subject to compliance of Fit and Proper criteria. A self-certification for "Fit & Proper" shall be filed along with the application for transfer          of the shares. The conditions required to be fulfilled for the self-certification and the format for such declaration has also been provided in the Guidelines. 
vi.  A specific undertaking is to be given by the PEFs to not to create any encumbrance on or leverage the investment;
vii. In case the investment is onetime, then the PEF shall make an upfront disclosure to this effect.

Where a PEF (through an SPV) invests in an insurance company in the capacity of an Indian investor, then such PEF shall also be required to comply with the stipulations, as provided above.

·  Investment by PEF through SPV in Indian Insurance Company as Promoter – The Guidelines prohibit PEFs from investing directly in an Indian insurance company in the capacity of Promoter. However, PEFs can invest through an SPV in an Indian insurance company in the capacity of Promoter, subject to certain conditions:

i. A PEF shall not be a promoter for more than one life insurer, one general insurer, one health insurer and one reinsurer;
ii. Investment to be made entirely out of its own funds and not from borrowed funds;
iii. The investments  shall be subject to a lock-in period of five years  applicable on SPV and also on the shareholders of the SPV holding more than 10% share capital of the SPV;
iv. Any induction of new shareholder/s in SPV by issue of fresh shares beyond 25% shall require the prior approval of IRDAI;
v. The minimum shareholding by promoters/ promoter group shall at all times be maintained at 50% of the paid-up capital of the insurer (however, where present holding of promoters is below 50%, such holding shall be the minimum holding) ;
vi. At least one-third of the directors on the Board of the insurance company must be independent directors.

In addition to the above, PEFs are required to comply with the provisions of IRDAI (Transfer of Equity Shares of Insurer) Regulations, 2015 including the filing of application for transfer of equity shares.