Insurance firms back to drawing board to redraft JV agreements

Irdai gives three months to comply with new rules

After the Insurance Regulatory and Development Authority of India (Irdai) notified new guidelines with regard to foreign direct investments in the insurance sector and gave insurance firms three months to comply with these, insurers are back to the drawing board to redraft shareholding agreements with foreign partners.

Arijit Basu, managing director and chief executive of SBI, said the regulations had been in line with the government guidelines and were on expected lines. He added the insurance regulator has made the norms very clear.

Experts said at the time of opening up of the sector, several Indian promoters had relied on the expertise of foreign partners for products and marketing strategies as the latter had a better understanding of the industry.

The regulator said the domestic firms would ensure that a majority of the directors, excluding independent directors, were nominated by Indian promoter/investor. The appointment of key management person, including chief executive officer or managing director or principal officer, should be through the board of directors or by the Indian promoter. The control has to rest with Indians.

However, key management person, excluding CEO, might be nominated by the foreign investor, provided the company board approves it. This is done only in companies where a majority of the directors, excluding independent directors, were the nominees of Indian promoters, it added.

"With Irdai clearly defining that Indian promoter would have to take majority decisions in not just management related matters and also voting, almost all agreements would have to be changed," said an industry insider.

Anuraag Sunder, director of PwC India, said insurers would have to rework the agreements and ensure compliance within three months.

The law would be applicable in case the companies proposed to hike their foreign investment from the existing level; or even when they did not intend to increase their current foreign stake from the existing level, Irdai clarified.