Clearing the road for insurance mergers

Sidharrth Shankar and Shivangi Talwar

Parliament has introduced and passed the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025 (Bill). The bill now awaits the President’s assent to come into force. 

The Bill marks a significant step in the central government’s efforts to modernise the insurance regulatory framework and address the long-standing bottlenecks in the insurance sector. One notable reform concerns the framework governing mergers and transfers of insurance business.

Under the Insurance Act, 1938 (Insurance Act), an amalgamation of or transfer of insurance business is permitted only between two insurance companies of the same class, pursuant to a scheme prepared in accordance with applicable law and approved by the Insurance Regulatory and Development Authority of India (IRDAI). A merger or transfer of insurance business of an insurance company with a non-insurance company is prohibited. 

This restriction came under sustained scrutiny from 2016 onwards during the proposed merger of HDFC Life and Max Life. The transaction involved a step merger of Max Life (an insurance company) with its listed holding company Max Financial Services (a non-insurance company), followed by a merger of the combined entity with HDFC Life. After much debate, the IRDAI rejected the transaction on the ground that the Insurance Act permits mergers only between two insurance companies of the same class. Even though the merger of Max Life with Max Financial Services was an intermediate step and the ultimate merged entity, HDFC Life, would have remained an insurance company, the transaction fell foul of the statutory prohibition. 

Judicial interpretation has not fully aligned with this restrictive regulatory approach. In Insurance Regulatory and Development Authority of India vs. Shriram General Insurance Company Limited, the Chennai Bench of the National Company Law Appellate Tribunal (NCLAT) held that Section 35 of the Insurance Act pertains to mergers or transfers of insurance business between insurance companies, and a merger between an insurance company and a non-insurance company does not fall within the scope of that provision. The NCLAT rejected the IRDAI’s contention that Section 35 implicitly prohibits such mergers merely because it does not expressly permit them.

Under the Bill, the insurance business of an insurance company or the non-insurance business of a company may be transferred to or amalgamated with the insurance business of another insurer, subject to the prior approval of the IRDAI. Crucially, the resultant entity must always be an insurance company.

While the Bill suggests the amalgamation of insurance and non-insurance business, the practical feasibility of such transactions may depend on whether the central government and the IRDAI permit insurers to undertake additional notified business activities beyond the core function of effecting insurance contracts.

This reform could enable non-insurance companies to enter the insurance sector through amalgamation, potentially bypassing the time-consuming and onerous process of obtaining a fresh insurance licence. It also introduces greater flexibility for promoter groups and investors, facilitating group-level restructurings and exits.

At present, amalgamation and transfer of insurance business under the Insurance Act, read with the IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024, broadly involve the following steps:

the insurer filing a notice of intention, notifying the IRDAI of the transaction;

the insurer filing an application seeking ‘in principle’ approval from the IRDAI within two months from filing the notice of intention;

upon receipt of such approval, the transacting insurers approach other regulatory authorities --including the National Company Law Tribunal, Reserve Bank of India, Securities Exchange Board of India, and Competition Commission of India, as applicable; and

final approval being granted by the IRDAI after approvals from other regulatory authorities have been obtained.

This process is cumbersome and does not allow regulatory approvals to be sought concurrently. Given the reformist thrust of the Bill, there is a strong case for re-examining this approval mechanism. A single-window clearance process led by the IRDAI could significantly reduce such issues while preserving supervisory oversight. 

(Sidharrth is a senior partner and co-chair at a leading law firm; Shivangi is a partner at the law firm)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.