Irdai refuses any say to foreign partners

Even after raising stake to 49%, foreign insurers can't decide on strategy or products

Foreign partners in insurance companies in India will have no final say on decisions pertaining to strategy and produ-cts, as the Insurance Regulatory and Development Authority of India (Irdai) has decided not to give them any additional rights when their they increase their stake from 26 per cent to 49 per cent.

According to regulatory officials, as the Insurance Laws (Amendment) Act said all ins-urers would have "Indian management and control", there would be "no exclusivity granted to foreign promoters in areas such as appointment of chief executive officers, or to board positions, or even company decisions on strategy and products".

While the regulator might not bring out guidelines on Indian management and control, it would review individual agreements in detail when foreign insurers seek approval to increase stake from 26 per cent to 49 per cent. Sources said if the regulator found any 'control' resting with a foreign partner, a company might even have to make changes to the existing agreement.

For insurance companies, 'Indian management and control' has been a bone of contention. While foreign partners haven't been pleased with the inclusion of this clause in the insurance Act at the last moment, they have been awaiting clarifications on what rights they would get.

A senior Irdai official said, "A foreign insurer increasing its stake from 26 per cent to 49 per cent does not mean it would have significantly higher rights than what it has currently. No top executive appointment or major company decision can be taken by the foreign partner, even though it will have a larger share of the company capital than what it does currently."

That would mean Indian promoters will appoint most board members, as also senior management teams. For strategic decisions to be passed, the consent of Indian promoter will be needed.

Sources said the regulator would try to ensure no major decision was passed without Indian promoters' consent, nor senior management appointments decided by foreign partners.

TURN OF EVENTS

2014

• JUNE: Finance minister says composite insurance FDI cap to be raised to 49%, with Indian management control
• JULY: Cabinet approves 49% FDI in insurance, with Indian control
• DECEMBER: Select panel on insurance FDI brings out report, says definition of ownership and control be put in Bill

2015

• MARCH: Insurance Bill is tabled in Parliament and passed
  Does not define what Indian management and control means
• MAY-JUNE: Confusion on whether FII holding in Indian company would be considered foreign holding
• JULY: Clarification brought out, saying FII holding not part of FDI
• JULY-AUGUST: No exclusivity for foreign insurers when they raise stake, suggests Irdai

The insurance Act allowed insurers to receive foreign direct investment (FDI) of up to 49 per cent, with Indian management control, though it did not define what that would mean. This required Irdai to clarify its stand on the issue and how it interpreted the provision.

The chief executive of a large private life insurance company said, "We understand the regulator will not bring out any guidelines on Indian management and control, as it does not wish to do so. However, when FDI-increase proposals come to it, it would ensure the foreign promoter doesn't have rights such as CEO appointments, or take a majority decision in any case."

According to Irdai norms, an FDI cap of 49 per cent is applicable to all Indian insurance companies. Also, they cannot allow aggregate holdings by way of total foreign investment in their equity shares by foreign investors, including portfolio investors, to exceed 49 per cent of their paid-up equity capital. They also have to ensure ownership and control are in the hands of resident Indian entities at all times.

While FDI proposals of up to 26 per cent of the total paid-up equity of owed through the automatic route, those seeking to raise total foreign investment to 26-49 per cent will require the approval of the Foreign Investment Promotion Board (FIPB).

The Competition Commission of India also has to approve such proposals, while a final nod would be needed from Irdai.

Sources said while the finance ministry made certain clarifications on confusion over FDI-foreign institutional investment, it has left it to Irdai to ensure no foreign entity directly or indirectly controls an insurance company in India, by way of voting rights, board positions or top management appointments.

Companies such as Aviva Life, Aegon Religare, Edelweiss Tokio Life and Bharti AXA had filed applications with the FIPB for increasing the stakes of their joint venture partners from 26 per cent to 49 per cent. So far, only Bharti AXA has received an approval in this regard.

Several entities have been waiting for Irdai to define 'control and management' by Indians. There has been apprehension among foreign partners about voting rights and how these would turn out when they raise their stake. Sources said so far, their concern hadn't been allayed.