Irdai allows insurers to issue preference shares with some conditions

Says instruments must have been issued and paid-in in cash

The Insurance Regulatory and Development Authority of India (Irdai), in an exposure draft, said insurance companies can issue other forms of capital like preference shares or subordinated debt. However, it said these instruments must have been issued and paid-in in cash.

The regulator has proposed that with respect to preference shares, it should be superior to the claims of investors in equity shares but shall be subordinated to the claims of the policyholders and all others creditors. Further, for subordinated debts, it should be superior to the claims of the investors in equity shares and preference shares but shall be subordinated to the claims of the policyholders and all other creditors.

Irdai further said it should be neither secured nor covered by a guarantee of the insurer or its related party or other arrangement that legally enhances the seniority of the claim vis-à-vis the insurer’s policyholders and creditors. It should also be perpetual or the maturity period or redemption period is not less than 15 years. In case of redeemable preference shares or debentures, Indian insurance companies would not pay any incentives for early redemption.