IRDI has set up guidelines to regulate private equity investment in insurance companies under IRDAI guidelines 2017. These guidelines have come into effect from 5th December 2017 and apply to all unlisted Indian insurance companies and to Private equity funds which have invested in insurance companies.
Norms for Private Equity Investments in Insurance
IRDAI has permitted private equity firms to become promoters of unlisted insurance companies. India’s insurance regulator will lay down rules for private equity firms promoting insurers after several such investors picked up stakes over past few months. There are two categories, one is an investor in an insurance company holding less than 10 percent stake and other is promoter.
IRDAI guidelines are effective from above date. In addition to above, private equity funds will require complying with IRDAI regulation, 2015 and other applicable IRDAI, exchange control and SEBI regulations. Read 10 main things you need to know about tax saving fixed deposits
Definition of Private Equity Fund
Under Guidelines, PE fund is defined to include an alternative investment fund registered under SBI regulations, 2012 and fund formed form investment in one or more entities by one or more persons.
Investor vs. Promoter
PE fund is permitted to invest in Indian Insurance companies either as promoter where its investment exceeds 10 percent of equity capital of insurer or as an investor where its investment is less than 10 percent.
New rule permit Private Equity Fund to invest in Insurance companies as an investor
There will be few conditions in such a way as shareholding lock-in of five years, entry through a special purpose vehicle (SPV) and satisfying Indian-owned and controlled guidelines of insurance regulator. Key conditions applicable to PEFs investing in Indian Insurance companies as an investor or promoter are given below.
- These guidelines apply to unlisted Indian Insurers and private equity funds that have invested in unlisted insurers. This rule allow for private equity funds to invest either directly in Indian insurers in capacity of an investor or to invest through special purpose vehicle (SPV) of promoter in insurer.
- This rule set 10 percent in insurance companies for investors. As an investor, you can invest fund up to 10 percent of paid up equity of an insurance company.
- All Indian investors along with Private equity fund hold maximum 25% of paid-up equity share capital of insurance company.
- Promoters have to maintain 50 percent of paid up equity share capital of insurance company at all times. However, if present holding by promoters is below 50 percent, such lower holding will be minimum holding.
- As per investment, PE fund will need to provide self-certification on its fit and proper status which is based on criteria prescribed under IRDAI guidelines.
- Such foreign investment in private equity funds will be with guidelines issued by Department of industrial policy and promotion from time to time.
- Minimum shareholding by promoters or promoter group has to maintain at fifty per cent of paid up equity capital of insurance company at all times. This need shall not apply to company where present holding of promoters is less than fifty per cent. In such cases present holding of promoters will considered as minimum holding.
- In case of Private equity fund invest directly in insurance company, but you cannot hold more than 10 per cent of paid up equity share capital in insurance company. Further, all Indian investors including investment by private equity fund jointly cannot hold more than twenty five per cent of paid up equity share capital of insurance company.
- PEF can invest in an Indian insurance company as promoter through an SPV and not directly. In case of the PE investment through SPV, minimum shareholding of promoters and promoter group should at all times be maintained at 50% of the paid-up equity capital.
- In case investment is one time, then PE fund will have to make an upfront disclosure. And regulator said after lock-in-period of five years, an undertaking plan through an IPO must be submitted.
- Any new shareholders in SPV through issue of fresh shares beyond 25 percent will require prior IRDAI approval. PEF through an SPV shall not promoter for more than one life insurer, one general insurer, one health insurer and one reinsurer.
- Investment to be made entirely out of own funds and not borrowed funds. Further, SPV need to provide an undertaking to subscribe to rights issue of insurance company.
In addition to requirements set under Guidelines, it has been clarified that private equity funds need to continue with applicable provisions of, inter alia, IRDAI regulation 2015, which govern transfer of equity shares in insurance companies, as well as guidelines on Indian owned and controlled as issued by IRDAI.