Irda announces M&A norms for general insurers

Approvals from RBI, Sebi & FM mandated

The Regulation — Insurance Regulatory and Development Authority (Scheme of Amalgamation & Transfer of General Insurance Business) Regulations, 2011 — would apply to all private general insurance companies with immediate effect.

With more than 10 years after opening up of the insurance sector, the regulations would pave way for M&As between 20 private sector players, most of who have foreign investment that is capped at 26 per cent.

Following this, the general insurers would now have to file the draft agreement of the proposed merger with the Irda and also the respective balance sheet while seeking approval from the regulator. The regulator has retained with itself the power to vet the valuations arrived at by the companies involved in M&As, saying that the authority would carry out an independent valuation of the insurance business of the transacting parties to arrive at the valuation.

In order to safeguard the policyholders’ interest, the Irda has mandated the insurers to inform their respective customers about the deal, it said.

Besides Irda, an acquirer would need to have approvals from the Reserve Bank of India and finance ministry, in case it has foreign direct investment. It also needs to have clearance of the Sebi and the Competition Commission of India (CCI).

Capital infusion

According to industry players, most private sector general insurance companies require fresh infusion of capital which may come from foreign partners, who have been constrained by the FDI cap.

The bill to raise the FDI ceiling is pending in Parliament. The general insurance business has remained loss making for want of capital, which is constrained due cap on foreign capital infusion. Till now, the Insurance Act provided for M&As only for life insurance companies.