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Title: Exposure Draft
Reference No.: --
Date: 28/08/2015
IRDAI (Other forms of Capital) Regulations, 2015
Insurance Laws (Amendment) Act 2015 has carried out amendments to the section 6A. The sub-section 6A (1) (i) of the Act allows an insurance company to have other forms of capital as may be specified by the Regulations.
Authority, in exercise of the powers conferred by Section 6 (1) and Section 114A (2) (db) of the Insurance Act, 1938 read with section 26 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), in consultation with the Insurance Advisory Committee, proposes to notify the regulations as per the attached draft.
The draft regulations includes the following
1. It allows an insurer to have other forms of capital in the form of preference shares, debentures and other subordinated debts as may be approved by the Authority. However, issuance of “Other forms of capital” shall be subject to the prior approval of the Authority.
2. The Authority shall consider the following before granting the approval
i. Issued and paid-in full in cash;
ii. Such preference shares or debentures are subordinated to policyholders, general creditors, and subordinated debt holders of the insurer;
iii. It is neither secured nor covered by a guarantee of the issuer or related party or other arrangement that legally enhances the seniority of the claim vis-à-vis the insurer’s policyholders and creditors;
iv. It is perpetual or the maturity period or redemption period is not less than 15 year;
Provided that in case of redeemable preference shares, no other incentives for redemption should be given.
v. Dividends/coupons must be paid out of distributable items.
3. Investment in such instruments by foreign investors including Foreign Institutional Investors (FIIs) or Foreign Portfolio Investors (FPIs) shall be subject to FEMA Regulations as may be applicable from time to time.
4. Such other form of capital not to exceed of 25 percent of the paid up equity capital of the insurer.
5. The same shall be counted towards “Available Solvency Margin” subject to the amortisation as under
Years to Maturity Included in Capital
· 5 years or more? 100%
· 4 years and less than 5 years 80%
· 3 years and less than 4 years 60%
· 2 years and less than 3 years 40%
· 1 year and less than 2 years 20%
· Less than 1 year 0%
6. An Indian insurance company may call back the preference shares or subordinated debts so issued only after a minimum period of five years subject to the prior approval of the Authority and on satisfying the various conditions as laid down in the regulations.
All are requested to offer their valuable comments / suggestions on the proposed regulations for consideration of the same.
The comments / suggestions should reach us by 10th of September, 2015 in the format attached to Mr. R K Sharma, Joint Director by e-mail at rksharma at irda dot gov dot in
V R Iyer
Member-F&I
