Insurance License

Exposure Draft on IRDAI (Registration of Indian Insurance Companies) Regulations 2022

Exposure Draft on IRDAI (Registration of Indian Insurance Companies) Regulations 2022

The IRDAI notified the Exposure Draft on IRDAI (Registration of Indian Insurance Companies) Regulations 2022 on 13th October 2022, which aims at providing the fit and proper criteria, limits of investment in insurers, lock-in period on investment in insurers, simplification of the process of registration of insurance companies and criteria for investment by Private Equity Funds[1].

The article discusses the key aspects of this notification to help the insurers and other relevant persons to have better clarity about the same.

What are the Permissible Classes of Insurance Business?

The following businesses come under the permissible classes of Insurance Business

(i) Life insurance

(ii) General Insurance

(iii) Health insurance business exclusively.

(iv) Reinsurance business.

(v) Any other classes as specified by IRDAI

An applicant must make a requisition for registration application only for the classes of insurance business mentioned above.

What are the Disqualifications for Promoter / Applicant

The Disqualifications for Promoter / Applicant are discussed below –

Disqualifications for Applicant

The applicant would be disqualified due to the following reasons

Rejection of the requisition of application by the IRDAI or withdrawal by the applicants at any time during the five financial yrs preceding the date of making such an application  

  • Cancellation of the registration certificate by the authority
  • The exit of the Investors or promoters of the venture in the preceding 2 financial yrs from the date of the requisition of the registration application.
  • The name of the applicant doesn’t contain the terms such as insurance, reinsurance or assurance.

Disqualification for Promoter

The below-mentioned persons are not eligible to be the promoter of the applicant.

  • Any company being a subsidiary as per the definition provided in Section 2(87) of the Act. However, such a company would become eligible to be a promoter only upon the fulfilment of the below-mentioned eligibility criteria.
  • A listed company in the stock exchange(s) in India.
  • The company having its own sources of funds, independent from its holding company.
  • The net worth of the company is at least Rs.500 crore at the end of the FY preceding the date of application.
  1. The holding company of said company isn’t a subsidiary of any other company.
  2.  Association of Persons, an Individual or Body of Individuals
  3. A Partnership firm other than an LLP formed per the Limited Liability Partnership Act, 2008 (6 of 2009).
  4. A HUF
  5. A Trust 
  • An entity already acting as a promoter for any existing insurer or has proposed to act as a promoter for any other applicant belonging to the same class of insurance business.
  • An entity which is unable to meet the “Fit and Proper” criteria according to schedule 1 of these Regulations.
  • Cancellation of the registration certificate of an entity promoted by the said person by the IRDAI during 5 yrs preceding the date of application.
  • Rejection of the registration application or requisition for registration application by an applicant which is promoted by the said person by IRDAI or is withdrawn by the applicants at any time period during the 5 years preceding the date of application.
  • Surrender of Certificate of Registration by the insurer, the promoter/entity within the promoter group during the last 5 yrs from the date of the application.

Procedure for Registration

The applicant is required to follow the below-mentioned procedure for the registration of Indian Insurance Companies.

Issue of NOC

Any company containing the name, such as insurance, reinsurance or assurance, cannot be incorporated without obtaining a NOC from the IRDAI; therefore, the applicant is required to file an application for the NOC in the prescribed format.

The validity of such NOC is 6 months, and the applicant must file an application for issuance of registration application Form IRDAI/R1 within such time, extendable to 3 more months by the chairperson upon providing the reasons for the same.  

R1 Approval

IRDAI shall issue the registration application Form IRDAI/R1 after the examination of the matters and being satisfied with the relevancy of the same, the validity of which shall be 3 months within which the applicant must duly fill and submit the registration form IRDAI/R1 for further consideration by the authority.

Documents Required for registration of Indian Insurance Companies.

The application must be made in the prescribed format, along with the submission of the following documents.

  1. COI issued by ROC in case of a company or Registration certificate in case of a cooperative society.
  2. A certified copy of the MOA & AOA wherein the applicant is a company and registered under the Companies Act, 2013 or a certified copy of the parliament Act set up the statutory body to carry on insurance business;
  3. Certified copy of bye-laws in case of cooperative society,
  4. The name, address and occupation of the directors, promoter and Applicant.
  5.  Copy of the annual report of promoters till the last 5 years, as applicable, preceding the year of the filing of requisition of registration application;
  6. a certified copy of the shareholders’ agreement b/w the promoter(s) and investor(s) of the applicant;
  7. Details of the Business for 5 years duly approved by the applicant’s Board of Directors, along with a certificate from a fellow actuary about reasonableness and workability of such details 
  8. Proof evidencing the payment of the non-refundable fee of Rs. 10 lakh to the Authority vide DD or any other recognized mode of electronic fund transfer.
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The application for registration shall be scrutinized on the parameters prescribed per the regulations.

The chairperson of the authority shall grant the R1 approval after being satisfied with the adequacy and accuracy of the application form and the documents and other conditions as specified in the approval letter, along with the issue of the IRDAI/R2 form.

R2 Approval

The applicant must submit the below-mentioned documents along with the application form.

  1. An affidavit by the applicant as well as its promoters about the adequacy of the paid-up share capital, after the deduction of the preliminary expenses, with the requirements of the 2nd proviso to section 6(1) of the Act.
  2. A statement that indicates the shareholding pattern of the applicant, inclusive of the distinctive numbers of shares which are proposed to be issued to every investor(s) and promoters in respect of the equity share capital of the applicant;
  3. An affidavit by the MD, CEO, or whole-time director of promoters and the investors of the applicant providing certification about the holding of foreign paid-up equity capital, as per sub-clause (b) of clause (7A) of Sec- 2 of the Act, calculated as per the Indian Insurance Companies (Foreign Investment) Rules, 2015 r/w these regulations and shall not exceed 74 % of the total paid-up capital of the company of the applicant either directly or indirectly. However, if the Indian promoter is an LLP, the affidavit must be signed by the Designated Partner.
  4. If the applicant has foreign investment, an affidavit by the MD, whole-time director or CEO, as well as the promoters of the applicant certifying about the compliance with the requisites of regulation 8 
  5. If the applicant has foreign investment exceeding 49 per cent, an affidavit must be furnished by the MD CEO or whole-time director, & the promoters of the applicant providing a certification regarding compliance with the requirement of regulation 9.
  6. A certified copy of the statements of the assured rates, advantages, standard forms of the insurer terms, and conditions offered in relation to insurance policies along with a certificate by an actuary if it is a life insurance business that, advantages, such rates terms and conditions are workable and sound.
  7. A certified copy of the MOU, Management Agreement, Shareholders Agreement, Voting Rights Agreement, or any other agreements entered into b/w the promoters and the investors, or amongst the promoters as a whole, inclusive of details of the support/comfort letters exchanged b/w the parties;
  8. A certificate from a practising CA or a practising CS certifying compliance with all the requirements as prescribed by the authority.

After the processing of the R2 application but before its approval by the Authority, the applicant must ensure to submit the following documents.

  1. Evidence of the receipt of equity share application money as per sec – 6 of the Insurance Act, 1938, as well as conditions as per R1 approval issued by the IRDAI 
  2. An affidavit by the applicant, investors and promoters stating about the conversion of the said share application money into paid-up equity share capital of the applicant upon grant of Certificate of Registration, 

Further, the authority shall consider the other relevant parameters prescribed in the regulation while scrutinizing the application form.

Grant of Registration Certificate

The chairperson of the authority shall grant the registration certificate upon the fulfilment of the prescribed criteria.

Commencement of Insurance Business

The applicant can commence the insurance business within 12 months from the date of grant of the registration certificate; otherwise can seek an extension for the same by a written application to the authority stating the reasons for such delay in commencement of business which must not exceed 24 months.

Rejection of Application

The authority can reject the application after providing a reasonable opportunity of presenting the matter to the applicant. The rejection can be due to the following reasons

  • Incomplete Registration Form
  • Inability to fulfil the conditions specified in the Act and Regulations
  • Any other reason recorded in writing

The reason for the rejection must be communicated to the applicant within 30 days, stating the grounds for rejection. Such rejection shall make the applicant disentitled to the registration certificate.

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Further Information and Clarification

IRDAI can even ask the applicant to furnish additional documents or clarification regarding the relevant matters for consideration of the application at any stage of the registration process.

IRDAI reserves the right to impose any conditions deemed fit by the authority regarding the grant of NOC, R1, R2 or the Registration certificate.

Appeal to SAT:  

If an applicant is unsatisfied with the decision of the IRDAI at any stage under these regulations, he may file an appeal before SAT within a time frame of 30 days from the date of the decision being communicated. 

Consideration for Processing the Application

The lock-in period of the equity shares of a company on the date of the grant of the certificate is discussed below –

  • At the time of the grant of the registration certificate (R3), where the investment is made in the capacity of a promoter or investor, the lock-in period shall be 5 yrs.   
  • If the investment is made by the promoter or investor 5 yrs after the grant of the registration certificate and if there is a change in the shareholding pattern, the lock-in period shall be earlier to 5 yrs or 8 yrs from the grant of the certificate of registration.
  • If a promoter makes the investment after 5 yrs but before 10 yrs from the grant of R3 and there is a change in the shareholding pattern, the lock-in period shall be earlier than 3 yrs or 12 yrs from the grant of a certificate; however, If the same is made by the investor the lock-in period would be earlier to 2 yrs or 11 yrs from the grant of certificate of registration.
  • In case an Investment is made by the promoter after 10 years after the grant of R3 and there is a change in the shareholding pattern, the lock-in period shall be 2 yrs, whereas if the investment is made by the investor, the period would be 1 yr.
  • The IRDAI can relax this lock-in period to provide time for the companies to list their companies on the stock exchange.

Fit and Proper Criteria

  • The applicant, its promoters and the investors shall be assessed by the Authority regarding the fulfilment of the fit and proper criteria based in the parameters specified in Schedule 1 of the Regulations.
  • Such criteria must be fulfilled by the parties mentioned above on a continuous basis, i.e. even after grant of the registration certificate.
  • If any of them are not found to be fit & proper at any stage, the IRDAI can take action as deemed appropriate by the authority.

Non-Operative Financial Holding Company

In case the applicant is promoted by a Special Purpose Vehicle or a (NOFHC), the following conditions shall be complied with:

  1. The SPV/NOFHC is prohibited from issuing convertible instruments of any kind.
  2.  The director/ employees/ of the SPV/NOFHC must not be issued any stock options/sweat equity shares.
  3. The equity capital shall be in accordance with section 6 of the Insurance Act, 1938;
  4. Prior approval of the Authority must be obtained for the transfer of shares of the SPV/NOFHC in accordance with the limits specified u/s 6A of the Insurance Act, 1938, r/w IRDAI (Transfer of Equity Shares of Insurance Companies) Regulations, 2015.
  5.  The lock-in period, investment limits and other requirements according to these Regulations must be applicable at SPV/NOFHC level.
  6. The criteria provided in Regulation 5(2)(iii) would be applied to the promoters and investors of the SPV/NOFHC.
  7. The capital in the SPV/NOFHC by its promoters/investors must be commensurate with percentage of their equity stake in the SPV/NOFHC.

Criteria for Investment by the Private Equity Funds

The private equity funds can invest in an applicant as a promoter or investor in the manner specified under these Regulations.  

Investment in the insurer, including the proposed limit in respect of the future capital requirement of the insurer, must be according to the Private Equity Fund’s strategy mentioned in its placement memorandum provided to its investors or its charter documents.

A PE Fund may invest in any insurer in capacity of “promoter” only if it meets following criteria:

a. The PE Fund or its Parent Fund has completed 10 years of operation;

b. The funds raised by PE Fund, including its group entity(ies) is USD 500 million or more (or its equivalent in INR);

c. The investible funds available with PE Fund are not less than USD 100 million;

d. The PE Fund has invested in financial sector in India or other jurisdictions.

Manner of Calculating the Equity Capital Held by Foreign Promoters And Foreign Investors

The calculation shall be made as under and shall be the aggregate of:-

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The quantum of paid-up equity share capital held by Foreign Investor(s) and Foreign Promoter(s), which includes foreign venture capital investors in the applicant company

The proportion of the paid-up equity share capital held or controlled by such foreign investor(s) either by itself or through its subsidiary companies in Indian promoter(s) or Indian Investor(s) as mentioned in sub-clause (i) of this Regulation.

Requirements for Investment

  • An Indian Insurer to have Foreign Investment, the directors, key management persons and at least 1 of the chairpersons, MD, and CEO must have Indian citizenship. 
  • An Indian Insurer having foreign investment which exceeds 49% – 
  • For an FY for which a dividend is paid on equity shares and the solvency margin at any time > 1.2 times the control level of solvency, not less than fifty per cent of the net profit for the FY must be retained in general reserve; and  
  • At least 50 % of its directors must be independent directors until and unless the chairperson of Board is an independent director; in such case, at least 1/3 of its Board shall comprise independent directors.

Annual Fee

After the grant of Registration Certificate u/s 3 of the Act, the applicant must make the payment of an annual fee for every FY to the Authority before the 31st day of January of the preceding financial year, which would be 

a. Ten lakh rupees

b. 1/20 of 1% of total gross premium written directly by an insurer in India during the FY preceding the year in which the annual fee must be paid, or rupees ten crores, whichever is less.

Issue of Duplicate Certificate

The duplicate certificate would be issued by the authority upon filing an application by the insurer to the authority in Form IRDAI/R4.and on receipt of a fee of Rs. 1 lakh. 

Suspension / Cancellation of Certificate of Registration

The certificate of registration can be cancelled or suspended either voluntarily by the applicant or by the authority.

Procedure for Suspension of the Certificate

  • This would be done through providing an opportunity of being heard to the applicant, followed by the issue of show cause notice by the authority 
  • Reply by the insurer within 21 days, along with the supporting documents to support the case 
  • Passing of the order within 30 days not before providing an opportunity of being heard to the applicant and examining the submissions made by the insurer 
  • The copy of such an order must be provided to the insurer within 7 days of passing the order 

Procedure for Cancellation of Certificate of Registration

  • The cancellation of the certificate shall be made after an inquiry is conducted by an inquiry officer appointed by the authority for this purpose.
  • The inquiry officer shall issue a notice to insurer at the registered office or the principal office of the insurer, the reply of which must be furnished along with any other relevant documentation to support the reply by the insurer within 21 days from date of receipt of the notice.
  • The inquiry officer shall examine the submissions made by the insurer along with the other documents submitted by the insurer, provide him with an opportunity of being heard and even appoint a presenting officer if deemed necessary.
  • After the examination, the officer shall prepare a report which would include the penalty levied on the insurer along with the justification for imposing the proposed penalty and submit the report to IRDAI.
  • After this, the authority would issue a show cause notice which must be replied to by the insurer within 21 days and pass an order within 30 days, which must also include the justification regarding the penalty; in the case, the copy of which must be furnished to the insurer within 7 days.

The insurer must note the following pointers.

  • The suspension/collection of the certificate shall result in the ceasing of the business of the insurer.
  • The order of cancellation of the certificate must be published in 2 daily newspapers where the place of business of the insurer is situated.
  • The insurer can file an appeal to the SAT in case if being unsatisfied with the order passed by the authority.

Conclusion

The notification meticulously discusses the procedure for the Registration of Indian Insurance Companies along with all the aspects associated with the same, which can help to smoothen the whole process and encourage the Indian insurance companies to get them registered at the earliest.

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