Irda proposes tough public issue norms in non-life arena

The Insurance Regulatory and Development Authority (Irda) on Tuesday stated under the Issue of Capital and Disclosure Requirements (ICDR) Regul-ations, no general insurance company could approach the Securities and Exchange Board of India (Sebi) for public issue of shares, as well as for a subsequent issue, without its prior written approval.

In draft norms released on Tuesday, the regulator stated these regulations would be applicable to divestment of excess shareholding by promoters of an applicant company and/or to raise funds in a different manner under ICDR Regulations. This could be through the issue of capital under ICDR Regulations and divestment of equity by one or more promoters through a public offering for sale, under ICDR Regulations.

In the draft, Irda also stated issuances and allotment of capital by an insurance company should be only through fully paid-up equity shares. Issue of capital other than those specified, including transfer of shares beyond the specified limits as laid down by the Insurance Act, 1938, would require Irda’s prior approval.

CAPITAL NORMS

• Any approval by Irda won’t, in any manner be deemed to or serve as a validation of the representations by the applicant company in any offer document.
• Irda will have the right to not grant approval if the company is not compliant with the regulatory framework; or it is detrimental to the interests of policyholders; or it may not be in the interest of the insurance business in the country
• The authority shall process and grant approval on the application as expeditiously as possible.
• 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

The regulator stated an applicant company proposing to raise share capital through a public issue in terms of these regulations may do so only on completion of 10 years from the date of commencement of business by the applicant company, or another period prescribed by the Centre. It added the approval granted would have a validity period of a year from the date of issue of the approval letter. During this period, the applicant company would have to file the draft red herring prospectus with Sebi, under ICDR Regulations.

For granting approvals, Irda would consider factors like the company’s overall financial position, its regulatory record, the proposal for issue/offer of capital, the capital structure after the issue/offer of capital, and the purpose to which the share capital proposed to be raised would be applied. It would particularly consider the embedded value of a company. This value would have to be prepared by an independent actuarial expert and peer reviewed by another independent actuary. “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 draft stated.

While granting approvals, Irda may also prescribe the extent to which promoters would dilute their respective shareholding, the maximum subscription which could be allotted to any class of foreign investors and the lowest lock-in period for promoters from the date of allotment of shares. Irda has also prescribed additional disclosures, including risk factors specific to insurance companies, an overview of the insurance industry, disclosure of financial statements, a glossary of terms used in the insurance sector and particulars of issues and issuers.

Irda has stated non-life companies should give their suggestions to the draft by September 30.