A flourishing insurance sector is crucial in a developing economy like India. The sector has been in the limelight in recent years – first due to the raising of the foreign investment cap from 26% to 49% and recently due to the surge in listing of insurance companies.
Until two years ago, when the archaic Insurance Act, 1938, was overhauled by the much awaited Insurance Laws (Amendment) Act, 2015, promoters had limited ability to realize their investments. Indian promoters were required to divest shareholding in excess of 26% after 10 years from the commencement of business, in the manner prescribed by the Insurance Regulatory and Development Authority of India (IRDAI). However, this requirement remained dormant as the IRDAI did not prescribe the manner for such divestment until a few years before the amendment to the 1938 statute, which omitted the statutory divestment requirement. The IRDAI issued regulations providing for life insurance and general insurance companies to list shares in 2011 and 2013 respectively.
From the perspective of regulatory development, 2015 was a good year. The Insurance Act amendments included allowing foreign investment up to 49% and opening by foreign reinsurers of branch offices in India. The IRDAI also notified two sets of regulations: the IRDAI (Transfer of Equity Shares of Insurance Companies) Regulations, 2015, permitting “investors” (defined to exclude foreign investors) to hold up to 10% of the aggregate shareholding of an insurance company and permitting insurance companies to have investors’ holdings up to 25% of the total capital (i.e. through multiple investors); and the IRDAI (Other Forms of Capital) Regulations, 2015, permitting issuance of capital in forms other than equity shares carrying uniform voting and economic rights.
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Roopal Kulsrestha is a partner at Shardul Amarchand Mangaldas & Co. The views and opinions expressed are solely those of the author and do not necessarily reflect the official view or position of the firm.
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