The Insurance Regulatory and Development Authority (IRDA) has released draft guidelines of Issuance of Capital by General Insurance Companies Regulations, 2012. These Regulations shall be applicable to divestment of the excess shareholding by the promoters of the applicant company and/or to otherwise raise funds under the ICDR Regulations (SEBI – Issue of Capital and Disclosure Requirements Regulations, 2009).
With these regulations, IRDA has introduced a layer of approval for the general insurance companies before approaching The Securities and Exchange Board of India (SEBI). The draft guidelines clearly state, “No general insurance company shall approach the SEBI for public issue of shares and for any subsequent issue, by whatsoever name called, under the ICDR Regulations without the specific previous written approval of the Authority accorded in the manner prescribed herein.”
Issuance and allotment of capital by an insurance company shall only be in the form of fully paid up equity shares and no other form.
Criteria for consideration for approval
IRDA shall generally consider the applicant company’s overall financial position; its regulatory record; the proposal for issue/offer of capital; the capital structure post issue/offer of capital; and the purposes to which the share capital proposed to be raised will be applied. The following parameters will be considered for approval:
the period for which the applicant has been in the general insurance business;
the history of compliance with the regulatory requirements by the applicant company;
the maintenance of the prescribed regulatory solvency margin as at the end of the preceding six quarters commencing from the quarter immediately prior to the date of filing the application;
compliance with the disclosure requirements mandated under IRDA Circular No. IRDA/F&I/CIR/F&A/012/01/2010 dated 28th January, 2010 as amended and modified from time to time;
compliance with the Corporate Governance Guidelines;
its record of policyholder protection; and
the Embedded Value of the applicant company. Such Embedded Value Report shall be prepared by an independent Actuarial Expert and peer reviewed by another independent Actuary and shall be prepared in the manner prescribed by the Actuarial Practice Standard issued by the Institute of Actuaries of India or in compliance with the prescriptions laid down by the Authority in this regard. The Authority generally expects the Embedded Value to be two times the paid up equity capital (the paid up capital shall be inclusive of the share premium).
The approval granted by the Authority shall have a validity period of one year from the date of issue of the approval letter, within which the applicant company shall file the Draft Red Herring Prospectus (DRHP) with SEBI under the ICDR Regulations.
