IRDAI relaxes PE investment, solvency norms

The board of the Insurance Regulatory and Development Authority of India (IRDAI) approved a host of proposals, involving private equity investment, solvency norms, dilution of equity and fund raising, aimed at promoting ease of doing business and simplifying the process of setting up an insurance company. The regulator has allowed the promoters to dilute their stake up to 26 per cent, subject to condition that the insurer has satisfactory solvency record for the preceding five years and is a listed entity.

After the board meeting in Hyderabad, IRDAI said investment through special purpose vehicles (SPVs) has been made optional for private equity (PE) funds enabling them to directly invest in insurance companies, providing more flexibility. The IRDAI move is expected to bring more PE funds into the insurance sector.

Further, subsidiary companies will be allowed to be promoters of insurance companies, subject to certain conditions. Investment up to 25 per cent of the paid-up capital by a single investor (50 per cent for all investors collectively) will now be treated as ‘investor’ and investments over and above that will only be treated as promoter.

Earlier, the threshold was 10 per cent for individual investors and 25 per cent for all investors collectively. The changes in solvency norms will release around Rs 3,460 crore for insurers. It has also set indicative criteria for determination of ‘fit and proper’ status of investors and promoters.