Irdai proposes changes in investment rules for insurance companies

Insurance regulator proposes amendments covering mergers, promoter definitions and shareholding norms while reducing transaction fees to improve ease of doing business

The Insurance Regulatory and Development Authority of India (Irdai) has proposed a set of amendments to regulations governing insurer registration, capital structure, share transfers and amalgamations, as part of efforts to create a more transparent, growth-oriented and globally aligned insurance sector. The amendments are in light of the changes introduced through the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025.

 

Irdai has proposed norms to allow the merger of insurance companies with non-insurance companies. Accordingly, the transferor company carrying on non-insurance business must be the non-operative holding company of the insurer with which it proposes to amalgamate.

   

The transferor company should hold more than 50 per cent of the equity capital of the transferee insurer. It should not have any business operations and the scheme of amalgamation must be prepared under Section 35 of the Act.

 

Also, the policyholders’ fund of the transferee insurer cannot be used, at any point of time, to meet any liabilities, claims or obligations arising out of the amalgamation.

 

The board of the insurer will also satisfy itself that such amalgamation will not adversely impact the interests of the policyholders of the transferee insurer. The transferee insurer shall demonstrate, to the satisfaction of Irdai, that its solvency, after amalgamation, will remain above the control level. The Irdai-mandated solvency ratio is 150 per cent.

 

In consideration for the amalgamation, the transferee insurer shall only be permitted to issue its equity shares to the shareholders of the transferor company. No other form shall be permissible for payment of consideration.

 

“The said shareholders of the transferor company shall be required to meet the ‘Fit and Proper’ criteria as laid down in Registration Regulations, 2024,” Irdai said.

 

Under the current guidelines for amalgamation, an insurer is expected to pay a fee at the rate of one-tenth of gross premium, subject to a minimum of ₹50 lakh and a maximum of ₹5 crore. It is proposed to reduce the fee to a fixed amount of ₹10 lakh, payable by each of the transacting parties. In the case of the transfer of more than 50 per cent equity, the existing regulations stipulate an application fee of ₹50 lakh, which is proposed to be reduced to ₹10 lakh.

 

The relaxation is expected to improve the ease of doing business, reduce compliance costs, and encourage growth and investment.

 

Irdai has also proposed revisions to the definitions of “foreign promoter”, “Indian promoter” and “special purpose vehicle” to remove ambiguities and strengthen regulatory oversight, particularly following the increase in foreign direct investment limits in the insurance sector.

 

Further, under the present norms, special purpose vehicles (SPVs) are allowed to act as promoters. The insurance regulator has now proposed that applicants provide justification for adopting an SPV structure. Eligible SPVs will also include foreign-incorporated entities based in jurisdictions compliant with the Financial Action Task Force (FATF) framework.

 

Irdai has also issued clarifications on approval requirements for renunciation in rights issues and said that approval would be required for every five percentage-point increase in shareholding.

 

The insurance regulator has invited stakeholder comments on or before July 6, 2026.